Demand-side spillovers and semi-collusion in the mobile communications market

We analyze roaming policy in the market for mobile telecommunications. Firms undertake investments in network infrastructure to increase geographical coverage, capacity in a given area, or functionality. Prior to investments, roaming policy is determined. We show that under collusion at the investment stage, firms' and a benevolent welfare maximizing regulator's interests coincide, and no regulatory intervention is needed. When investments are undertaken non-cooperatively, firms' and the regulator's interests do not coincide. Contrary to what seems to be the regulator’s concern, firms would decide on a higher roaming quality than the regulator. The effects of allowing a virtual operator to enter are also examined. Furthermore, we discuss some implications for competition policy with regard to network infrastructure investment