TELECOMMUNICATIONS
CONTENTS CHAPTER 1 STRUCTURE, REGULATION AND COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY 3 THE SHRINKING BOUNDARY OF REGULATED MONOPOLY 54 31 COMPETITION IN CUSTOMER PREMISES EQUIPMENT 54 32 COMPETITION IN LONG DISTANCE SERVICE 58 33 THE DIVESTITURE 62 4 EFFORTS TO DEVELOP INTERCONNECTED COMPETITION 65 41 THE COMPETITIVE UNREGULATED INTERNET 42 THE TELECOMMUNICATIONS ACT OF 1996 AND LOCAL TELEPHONE COMPETITION 65 70 73 74 5 CONCLUSION 1 INTRODUCTION 3 REFERENCES 2 ECONOMIC CHARACTERISTICS 5 21 HISTORICAL OVERVIEW 5 22 NETWORK EFFECTS 9 CHAPTER 3 23 CUSTOMER DEMAND ANALYSIS 11 13 NETWORK EFFECTS 24 ECONOMETRIC COST FUNCTIONS 25 REPRESENTATION OF TECHNOLOGY AND PRODUCTION 16 3 REGULATION 19 31 PRICE REGULATION 21 32 THEORY OF ACCESS PRICING AND INTERCONNECTION 22 33 INTERCONNECTION PRACTICES 24 34 UNIVERSAL SERVICE 25 35 INTERACTION AMONG REGULATORY INSTITUTIONS 27 4 COMPETITION 29 41 COMPETITION POLICY 29 42 LONG DISTANCE COMPETITION 32 1 NETWORK EXTERNALITIES 2 CLASSIFICATIONS 3 IMPACTS OF NETWORK EFFECTS 31 CHOOSING NETWORK SIZE 32 CHOOSING AMONG COMPETING NETWORKS 4 FEATURES OF MODERN NETWORK EFFECTS MODELS 5 THE EMPIRICAL IMPORTANCE OF NETWORK EFFECTS 51 NETWORK EFFECTS IN PRINCIPLE 52 MEASURING NETWORK EFFECTS 6 POLICY IMPLICATIONS 43 MOBILE TELEPHONE 45 LOCAL NETWORK COMPETITION 34 35 7 CONCLUSIONS 44 ECONOMICS OF SPECTRUM AUCTIONS REFERENCES 36 5 CONCLUSION REFERENCES 38 39 SECTION I STRUCTURE CHAPTER 2 HISTORICAL OVERVIEW 1 INTRODUCTION 2 DEVELOPMENT OF REGULATED MONOPOLY TELECOMMUNICATION 21 THE EARLY TELEGRAPH AND TELEPHONE INDUSTRY 22 REGULATION AND MONOPOLY 44 46 46 50 CHAPTER 4 CUSTOMER DEMAND ANALYSIS 1 INTRODUCTION 2 TELECOMMUNICATIONS DEMAND ANALYSIS IN THE 1970S AND 1980S 3 THE GENERAL NATURE OF TELECOMMUNICATIONS DEMAND 4 THEORETICAL CONSIDERATIONS 41 A GENERIC MODEL OF ACCESS DEMAND 42 MODELS OF TOLL DEMAND 43 POINT-TO-POINT TOLL DEMAND 5 EMPIRICAL STUDIES 51 STUDIES OF RESIDENTIAL ACCESS DEMAND AND LOCAL USAGE; RESIDENTIAL ACCESS DEMAND: TAYLOR AND KRIDEL, 1990 52 BYPASS VIA EAS: KRIDEL, 1988 76 77 79 80 83 86 88 88 89 92 93 94 98 98 101 105 105 106 108 109 109 113 ACTIVATE 53 CHOICE OF CLASS OF LOCAL SERVICE: TRAIN, MCFADDEN AND BEN AKIVA, 1987 25 NETWORK OPTIMIZATION IN THE INTEROFFICE AND INTERCITY NETWORKS 193 116 3 NETWORK FACILITIES AND TECHNOLOGIES 195 54 STUDIES OF TOLL DEMAND, POINT-TO-POINT TOLL DEMAND: LARSON, LEHMAN, AND WEISMAN, 1990 31 WIRELINE SUBSCRIBER ACCESS 195 117 32 ALTERNATIVE SUBSCRIBER ACCESS TECHNOLOGIES 197 55 TOLL DEMAND MODELS ESTIMATED FROM A SAMPLE OF RESIDENTIAL TELEPHONE BILLS: RAPPOPORT AND TAYLOR, 1997 33 SWITCHING 199 119 34 INTEROFFICE TRANSPORT FACILITIES 200 56 COMPETITIVE OWN- AND CROSS-PRICE ELASTICITIES IN THE INTRALATA TOLL MARKET: TAYLOR, 1996 35 INTERCONNECTION ARRANGEMENTS AND COSTS 202 122 36 BROADBAND STANDARDS AND TECHNOLOGIES 203 57 TWO-STAGE BUDGETING AND THE TOTAL BILL EFFECT IN TOLL DEMAND: ZONA AND JACOB, 1990 4 COST PROXY MODELS OF THE TELECOMMUNICATIONS NETWORK 204 124 41 A BRIEF SURVEY OF COST PROXY MODELS IN TELECOMMUNICATIONS 205 6 AN OVERVIEW OF WHAT WE KNOW ABOUT TELECOMMUNICATIONS DEMAND 42 THE HYBRID COST PROXY MODEL 210 126 43 INTERNATIONAL APPLICATIONS OF HCPM 215 7 CHALLENGES FOR THE FUTURE 136 44 COST PROXY MODELS AS A TOOL FOR APPLIED EMPIRICAL ANALYSIS 217 REFERENCES 138 5 CONCLUSION 220 REFERENCES 221 CHAPTER 5 ECONOMETRIC COST FUNCTIONS SECTION II - REGULATION 1 INTRODUCTION 144 11 MONOPOLY OR COMPETITION 144 CHAPTER 7 12 REGULATION AND PRICE-CAPS: THE NEED FOR ASSESSING PRODUCTIVITY 13 EFFICIENCY MEASUREMENT AND THE USE OF ALTEMATIVE APPROACHES 145 PRICE REGULATION 148 14 GENERAL COMMENTS 150 1 INTRODUCTION 227 2 THE CONCEPTS OF ECONOMIES OF SCALE, SCOPE AND SUBADDITIVITY 151 2 FORMS OF INCENTIVE REGULATION 228 21 ECONOMIES OF SCALE AND SCOPE 151 21 BANDED RATE OF RETURN REGULATION 228 3 TECHNOLOGICAL CHANGE 158 22 EARNINGS SHARING REGULATION 228 31 ESTIMATING MARGINAL COSTS 161 23 REVENUE SHARING REGULATION 230 32 REVENUE WEIGHTS VERSUS COST WEIGHTS IN PRICE-CAPS FORMULAS 162 24 RATE CASE MORATORIA 230 4 A SELECTIVE REVIEW OF THE EVIDENCE 164 25 PRICE CAP REGULATION 231 5 CONCLUSION 170 26 PARTIAL DEREGULATION 232 APPENDIX 171 27 YARDSTICK REGULATION 233 REFERENCES 175 28 OPTIONS 234 3 TRENDS IN INCENTIVE REGULATION 236 CHAPTER 6 4 GENERAL ISSUES IN THE DESIGN AND IMPLEMENTATION REPRESENTATION OF TECHNOLOGY AND PRODUCTION OF INCENTIVE REGULATION 240 41 REASONS FOR INCENTIVE REGULATION 240 1 INTRODUCTION 180 42 INCENTIVE REGULATION IN PRACTICE 243 2 NETWORK DESIGN PRINCIPLES 181 43 POSSIBLE DRAWBACKS TO INCENTIVE REGULATION 245 21 TELECOMMUNICATIONS NETWORK ELEMENTS 181 5 DESIGNING PRICE CAP REGULATION 248 22 THE TRADE-OFF BETWEEN SWITCHING AND TRANSMISSION 186 51 SETTING THE X FACTOR 248 23 TELECOMMUNICATIONS TRAFFIC THEORY 188 52 DETERMINING THE LENGTH OF TIME BETWEEN REVIEWS 251 24 OPTIMIZATION IN THE LOCAL ACCESS NETWORK: MINIMUM DISTANCE AND MINIMUM COST NETWORKS 53 MID-STREAM CORRECTIONS: Z FACTORS 253 190 54 IMPLEMENTING THE PRICE CAP CONSTRAINT 253