The impact of pure long-run incremental costing (Pure-LRIC) on telecommunication operators in Malta

Abstract

Purpose of the Study: In view that the Malta Communications Authority is obliged under the EC Recommendation 2009/396/EC to implement Pure-LRIC for mobile and fixed termination rates, the aim of this dissertation is to analyse the expected financial impact from such regulation on telecommunication operators in Malta. Design: In achieving the aim of the study, qualitative research using semi-structured interviews were carried out to collect the operators and the Authority's opinions on the impact likely to ensue from the implementation of Pure-LRIC. Subsequently, a quantitative scenario analysis was carried out using secondary data to assess the impact following the introduction of Pure-LRIC on the operators' financial results. Findings: Findings revealed that whilst Pure-LRIC rates result in an overall positive impact on both fixed operators; it tends to neutralize the revenues of all mobile operators. This occurs by the increases in revenues of smaller operators due to significant cost savings, and the decreases in the revenue exploited by large MNOs from the huge disparity between mobile and fixed termination rates. Conclusions: This study demonstrated that the impact of Pure-LRIC will benefit the smaller market player and will have minimal impact on the larger players. Whilst the larger players will engage in strategies to retain their market shares so as to continue minimising the impact of Pure-LRIC, it also emerges that the Commission's motive behind Pure-LRIC to increase competition will also be achieved.