Interconnection and Rate-Sharing

TELECOMMUNICATION INTERCONNECTION AND RATE-SHARING POLICY: COMPARATIVE ASSESSMENT OF THE CPE/”BILL AND KEEP” AND THE INCREMENTAL COST/COST-BASED PRICING APPROACHES

Regulators have been struggling with the problems and issues associated with monopoly pricing for decades (Ergas & Ralph, 1994, p. 10). Since the break-up of AT&T, however, the efforts to find an efficient pricing mechanism for monopolistic industries have intensified. The separation of long-distance and local telephony services led to increased interconnection operations among the providers of long-distance and local area services. With increased interconnection activity came the need to develop acceptable policies to govern rate-sharing among providers. In the contemporary period, rapid and significant technological advances in telecommunications threaten to introduce chaos into the economic structure of the telecommunications industry. The phenomenon of interconnection growth and development appears to be outstripping the capabilities of both regulators and economic theory to deal with the problems and issued surrounding rate-sharing among provider companies.

Alternative Rate-Sharing Policy Approaches

Pricing and rate-sharing in the telecommunications industry traditionally have been approached in the theoretical context of the monopolistic market (Economides & Woroch, 1992, pp. 8-18). Over the years, a wide spectrum of policy approaches have been developed and implemented. None of these initiatives have proven successful over the long-term and some have not been successful even in the short-term.

Four of these approaches which have received substantial levels of support in the past and some degree of continuing support are (1) efficient components pricing (ECPR), (2) the international model, (3) the local cap, and (4) the global cap (Economides & Salop, 1992, pp. 105-123; Sharkey, 1991, pp. 1-16; Bittlingmayer, 1990, pp. 245-257). In the ECPR approa…

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