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

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ll," the argument is "that the fact that traffic flows between LEC and CMRS providers may be imbalanced at the outset of competition is irrelevant" (Federal Communications Commission, 1996, p. 9). Bill and Keep supporters point-out that "studies using the LECs' own data reveal that the transaction costs of measuring and charging for terminating traffic at the end office are probably higher than the de minimis cost of terminating traffic, thus making bill and keep for end office termination an economically efficient result" (Federal Communications Commission, 1996, p. 9). Bill and Keep proponents hold that the claim of opponents that the approach constitutes "a taking for Fifth Amendment purposes a would require that the property at issue be rendered worthless, that the loss would involve more than merely anticipated profits, or that a physical invasion occurred, none of which is the circumstance in this case" (Federal Communications Commission, 1996, p. 9). Proponents also contend that bill and keep is not a system of interconnection for free, but rather is a system of reciprocal exchange of traffic in which each company receives something of value and can recover the costs for termination from its own end users in flat monthly

Category: Economics - I