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Comparison of Fixed and Mobile Cost Structures

There are long-run differences between the cost structures of fixed and mobile networks that impact the cost of an average unit cost of voice traffic differently, and the GSMA commissioned PricewaterhouseCoopers (PwC) to examine these differences in detail. Their report considers both qualitative and quantitative analysis on the key differences between the two types of network as well as the intuitive and theoretical reasons why differences in cost structure might be expected, including:

• Treatment of access network costs
• Scarcity of spectrum
• Useful lives of assets
• Age of networks
• Scope and scale economies
• Ability to reduce costs through cost sharing

In recent times a number of commentators have questioned whether the scale of differences observed between fixed and mobile termination rates and whether the level of differences are cost reflective. Some commentators have gone so far as to suggest that the costs of fixed and mobile termination should be approximately the same. Given the fundamental differences between fixed and mobile networks we see no a priori reason to suppose that costs should be similar. In the light of the public debate and regulatory scrutiny, this paper examines the reasons why the cost of a minute of mobile telephony differs from, and is higher than, the cost of a minute of fixed telephony.

The biggest single difference is the access network and how its costs are driven and hence should be recovered. The access network in a fixed network (predominantly the copper loops) is almost entirely driven by the number of subscribers and increases in traffic independent of the number of subscribers require no further investment in the access network. As such, the costs of the access network are appropriately recovered from a subscription service. This is not the case for mobile networks where the access network (base stations and associated equipment) is not dedicated to individual subscribers. An increase in traffic on mobile networks does require further investment in the access network. As such, the costs of the access network are appropriately recovered from traffic services.

Download a copy of the 'Comparison of Fixed and Mobile Cost Structures' report below:

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