Traffic Management in Wholesale International Roaming Market: Towards a More Efficient Market?

Despite a general trend of lower charges for mobile calls, in Europe prices for international roaming calls have remained at levels surprisingly high. The apparent reluctance of mobile network operators to lower roaming tariffs is generating many antitrust concerns. This paper presents in a two country - two firm framework, the functioning of the current system governing wholesale international roaming agreements based on Inter Operator Tariffs (IOTs). The focus is on the role of traffic management: thanks to the emergence of traffic direction techniques, MNOs are allowed to select the roaming partner. We show that unless these techniques do not allow for perfect control on traffic flows, traffic management does not improve markets efficiency. In line with the regulatory mechanism recently adopted by the European Commission, we show that a simple price cap mechanism may restore partial efficiency in the wholesale market. We also show that although cross border cooperation at the wholesale level is Pareto efficient it will not emerge as an equilibrium of a two-sided matching game.