rates. Taking into account regulation we should expect either no significant effect on
competitors’ termination rates or a reduction in termination rates. The impact on the
amount of incoming traffic to competitors is still positive.
H2a (Investment externality without regulation): Investments increase competi-
tors’ termination rates and directly increase the incoming traffic to the competitors’
networks.
H2b (Investment externality with regulation): Investments either have no effect
on competitors’ termination rates (standard cost-based, incentive) or reduce competitors’
termination rates (LRIC) and directly increase the incoming traffic to the competitors’
networks.
As mobile contract conditions could be adjusted only in the long-run I expect to find
these effects independently of the pricing structure. The effect on termination rates
might be reduced in the long-run but should still be observed.11
4 Empirical Analysis
In order to test the hypotheses I employ data for the EU 15, as well as for the Norwegian
and the Swiss mobile wholesale markets. I first derive an econometric model which is
closely related to the theoretical model of the previous section. Afterwards I shortly de-
scribe the data and the expected signs of the estimation coefficients. The data selection,
the description of some pitfalls with the data and also the way of data adjustments is
provided in appendix A.4 and A.5.
4.1 Econometric Model
Both hypotheses consist of two parts, one concerning price effects and one concerning
traffic. It is therefore important to disentangle both effects. Two separate equations are
used to explain the effect of investments on termination rates and on incoming traffic.
Furthermore, two alternative equation systems are used for the first and for the second
hypothesis as two alternative effects of investments are tested.
11 Note that I refrain from hypotheses on off-net profits as due to data availability off-net profits have
to be derived from the available variables. Nevertheless, the impact of investments on off-net profits
will be further discussed in an extension to section 5.
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