Calling party pays

The total cost of each call placed by a subscriber of a Mobile Network Operator (MNO) is split in two parts. The first part is the amount that the caller’s provider is charging in order to provide the service to the calling party. However, a considerably big amount of the total calling cost, includes the amount that the provider of the call-receiver will charge caller’s MNO, in order to terminate his call into his network. Since the early years of the mobile communications, a significant effort has been put from the scientific community, as well as from the regulation authorities, in order to reduce the negative effects of the termination rates monopoly. However, the attempt to overcome any negative effects of this monopoly is limited in charging solutions mainly focused on the paying party of the termination rate, or in regulation rules that need to be enforced to the MNOs by the respective regulation authorities. Thus, the Calling Party Pays (CPP) principle with a strong regulator presence, and the Receiving party pays (RPP) principle, claim to eliminate the negative effects of the monopolistic termination rates market.

Suppose that a customer A of a MNO, say MNO O, intends to reach a subscriber B from a different MNO, T. For this purpose both MNOs have to be interconnected. While in the case assumed, MNO O has to provide an origination service, MNO T terminates the call. Both MNOs usually charge fees for their services, namely the call charge (Z) and the mobile termination rates (MTRs) (t), in order to cover costs. Under the Calling Party Pays (CPP) principle, MNO T charges MNO O a MTR which O passes on to his or her own subscriber in full, in addition to the call charge. In contrast, under Receiving Party Pays (RPP), subscribers of MNO O have to pay for origination services only, while the recipient in MNO T is charged (by T) for the termination service.

Given that there is no substitute for a termination service, the terminating MNO (T) enjoys a monopoly position for this service under the CPP principle. Thus T is able to exploit the originating MNO O by setting monopolistic termination rates. Of course, this holds for each termination of mobile calls under CPP, as long as termination can be realized by a single network only. Consequently, there is always an incentive for terminating MNOs to set monopolistic termination rates, irrespective of which MNO (here T or O) serves as the originating or terminating MNO. Moreover, since termination fees can be considered as part of the marginal costs of calls, originating networks have the incentive to pass high termination rates on to their own customers.

...
Wikipedia