Access-price structure and entrants’ build-or-buy incentives in mobile markets

We consider a market structure with three mobile providers, two of which are vertically integrated and have nationwide coverage. The third provider (an entrant) invests in partial coverage, and needs to rent access from one of its rivals in order to provide nationwide coverage. The paper is motivated by the Norwegian mobile market, where the competition authorities imposed a fine of EUR 78 million on Telenor (the dominant incumbent) for abusing market power by changing the access price structure in such a way that it hampered the entrant’s investment incentives. Specifically, Telenor reduced the rental rate for the actual use of Telenor’s network. At the same time, they introduced a SIM card fee payable by the entrant for each of its consumers. We show that the relationship between the change in the access price structure and the entrant’s investment level is ambiguous. Competition among the vertically-integrated providers in the access market may drive them to offer a structure that benefits the entrant. Thus, the observed change in access price structure may be the outcome of intensified upstream competition rather than abuse of market power.