The growth of mobile telecommunications industry made an issue of interconnection between fixed and mobile network. In relation to the issue, this paper analyzes compensation rules in fixed and mobile network interconnection. It can present regulator with guideline as follows.
Compensation rules can be classified into 'cost compensation rule' and 'revenue sharing rule'. While an originating part pays a terminating part cost of calls by 'cost compensation rule', an originating part shares revenue with a terminating part for interconnection by 'revenue sharing rule'.
Using bilateral monopoly model, this paper compares the characteristics of compensation rules. 'Cost compensation rule' satisfies constrained social welfare maximization. But if market is incomplete, 'revenue sharing rule' can increase social welfare. So it concludes 'revenue sharing rule' is more efficient. In such a case, the determination of sharing ratio by regulator is crucial.
Considering the competition of mobile network, this paper analyzes the impact of compensation rule upon competition between mobile operators with asymmetry cost structure. It concludes 'revenue sharing rule' has more sensitive effect on competition.
