Dominant carrier market power in US international telephone markets

An econometric model is used to examine market power in US international telephone markets. Lerner index estimates suggest AT&T's collection rate-cost margin was between 12% and 24% during 1991 to 1995. Although Lerner estimates imply deadweight welfare losses of up to US $261 million per annum, such losses are small compared to those from the inefficient pricing of international interconnection. Settlement rate-cost margins on US bilateral markets of approximately 89% translate into a US $4907 million transfer from consumers to carriers in 1995.     

The impact and politics of entry regulation on intrastate telephone rates

This paper examines the effects of regulatory barriers to the entry of the interstate long-distance carriers into the intraLATA toll service market. With these barriers, the local telephone companies can charge supracompetitive rates for intraLATA toll calls and use the excess revenues to price local exchange service below cost. We use a reduced form econometric price model to see whether these entry barriers have increased intraLATA toll rates. The results indicate that intraLATA toll rates in states that enjoin all types of long distance carriers from providing intraLATA service are about 7.5 per cent higher than in states that allow some sort of competition. In contrast, only preventing the entry of the largest facilities-based carriers does not affect intraLATA rates.     

Demand for telephone lines and universal service in Spain

In this paper we analyse the effects of some proposed tariff scenarios on universal service in Spain. For that, we use a model of demand for telephone lines to derive an econometric model of the net demand for new access lines, for the period 1980–1993, using quarterly observations. We use cointegration techniques to obtain long and short run equations. We conclude that a tariff restructuring that lowers the installation charge and domestic traffic rates while moderately raising recurring charges might have a small effect on the net demand for new lines. This suggests that the objective of universal service may be compatible with some of the tariff structures that have been recently considered in Spain.     

Strategic incentives under vertical integration: the case of wireline-affiliated wireless carriers and intermodal competition in the US

In its review of the Cingular/AT&T Wireless merger, the FCC noted the potentially conflicting incentives of wireline-affiliated (vertically integrated) versus independent (non-integrated) wireless carriers to act as intermodal competitors in the wireline exchange access market. Specifically, because Cingular and Verizon Wireless are owned by wireline carriers, they may have an incentive to compete “less aggressively” within their parents’ wireline territories while AT&T Wireless, an independent wireless carrier, would not. This paper examines these and other hypotheses by examining pre-merger data on the wireless plans offered by the three carriers. The empirical analysis suggests that AT&T Wireless did not design its plans based upon a regional strategy, whereas Cingular offered substantially smaller-minute wireless plans within its parents’ wireline territories. However, the results also suggest that Verizon Wireless did not design its plans in a markedly different fashion within and outside of its parent’s wireline region. It is posited that these findings might reflect the differing ownership and control structures of Cingular and Verizon Wireless.      

Access to credit and its determinants: A comparison of survey‐based measures

Measuring access to finance represents an important challenge in empirical studies. Due to data limitations, perception‐based indicators or the usage of finance are often used as approximations of access to finance. However, these approximations disregard firm‐specific differences in the demand for finance. We derive a direct measure of access to credit from firm‐level survey data and explicitly model credit demand. We study the determinants of access to credit and disentangle, in contrast to other measures, their effects on demand for and access to credit. We find that the usage of credit is not a sufficient approximation, while perception‐based indicators are surprisingly precise.     

The Change in Productive Efficiency in Telecommunications in the United States

The question addressed here is whether the adoption of incentive regulation, which has become an important regulatory tool in the telecommunications industry in the USA, has resulted in a change in the technical efficiency of local exchange carriers in the USA. After providing an overview of the nature of incentive regulation, a methodology for measuring technical efficiency and its change is introduced. This is a multiple-output/multiple-input distance function approach to measuring technical efficiency. The results of implementing this approach for 19 local exchange carriers for the 1988–2001 period indicate that in the production of local service, intrastate toll/access service, and interstate access to local loops, there was no change in technical efficiency between the 1988–1990 period and the 1991–2001 period, something that incentive regulation was specifically designed to promote.     

The Change in Productive Efficiency in Telecommunications in the United States

The question addressed here is whether the adoption of incentive regulation, which has become an important regulatory tool in the telecommunications industry in the USA, has resulted in a change in the technical efficiency of local exchange carriers in the USA. After providing an overview of the nature of incentive regulation, a methodology for measuring technical efficiency and its change is introduced. This is a multiple-output/multiple-input distance function approach to measuring technical efficiency. The results of implementing this approach for 19 local exchange carriers for the 1988-2001 period indicate that in the production of local service, intrastate toll/access service, and interstate access to local loops, there was no change in technical efficiency between the 1988-1990 period and the 1991- 2001 period, something that incentive regulation was specifically designed to promote.     

Dominant Firm Pricing with Competitive Entry and Regulation: The Case of IntraLATA Toll

In this paper, we develop a generalized model of a dominant firm-competitive fringe industry in which products are differentiated, costs vary across suppliers, and the dominant firm is subject to alternative regulatory regimes. The model yields an equilibrium condition that can be tested empirically using data on Bell Operating Companies' pricing of intraLATA toll telephone service. Estimation of a reduced form price equation provides strong support for the theoretical model. Of particular interest, the results suggest that dominant firm (Bell Operating Company) toll prices are driven down by the presence of actual and potential fringe competitors (interexchange carriers) when entry is authorized by the state. Additionally, the results fail to provide evidence that the introduction of incentive regulation or price-cap regulation has reduced intraLATA toll prices.     

Business Demand for Broadband Access Capacity

Using data garnered from a quarterly survey of U.S. business establishments from 2Q2000 through 1Q2001, the study estimates an aggregate model of business demand for broadband access capacity. The primary goal is to estimate price elasticities for the demand for access capacity conditional on a business establishment having made the decision to adopt some form of broadband access. The primary findings are (1) on average, the demand for broadband access capacity is price inelastic; (2) the sensitivity to price differs substantially across establishments of different sizes with small establishments exhibiting the greatest sensitivity to price; and (3) the estimated elasticities have important implications for public policies designed to extend broadband networks to unserved areas.     

Estimating demand curve in the Korean VoIP telecommunications market

The VoIP (Voice over Internet Protocol) market in Korea is showing rapid growth since domestic carriers initiated the service in 2006. These carriers are now seeking new revenue sources from various convergence services and are increasing investment into VoIP. In particular, local exchange carriers (LECs), formerly reluctant to invest in technologies that would cannibalize their local telephone revenue, have started to invest in VoIP, in recognition of the current convergence of media and the telecommunications industry, as well as in the face of intensifying competition. In this study, we determined that VoIP call rates and landline telephony call rates were the most important factors affecting VoIP call demand, in addition to network externality. We also verified that landline telephony is no longer a supplement to VoIP, but rather, a substitute that has considerable influence on VoIP call demand. Empirical evidence is expected to be considered in policy decision making on current issues in the IT industry, such as access prices or competitiveness assessment. The current empirical analysis on the Korean VoIP industry and the adherence to lessons learned from policy enforcement should provide valuable information to countries seeking to develop their own VoIP industries, as well as to businesses developing new strategies based on the VoIP market.     

A short-run monetary model of exchange rate determination: Stability tests and forecasting

The paper develops a short-run econometric monetary model of exchange rate determination. The model assumes a conventional money demand function, markets which are linked by interest arbitrage, adaptive expectations formation, and parameters which are stable over time. One-period-ahead forecasts of the mark/pound rate generated by the model compare favorably with naive model forecasts using monthly data. Stability tests provided evidence of parameter instability in 1976 but correction for it did not improve forecasting accuracy. The inability of monetary models to forecast accurately may be due to the underlying model assumptions rather than parameter instability.     

Demand for international telephone services between US and Africa

This paper uses a two-equation dynamic simultaneous equation model that accounts for call externality and arbitrage, and a dynamic panel estimator to investigate the demand for international telephone calls between the US and African countries. Using panel data from 45 African countries over the 1992–1996 period, we find that the demand for telephone calls from African countries to the US is price elastic while the demand for telephone calls from the US to African countries is price inelastic. We find telephone calls originating from African countries to the US are complementary to calls from the US to African countries while calls originating in the US to African countries are substitutes for calls to the US that originate in African countries, and calls between the two sets of countries exhibit reciprocal and arbitrage effects. We also find that the demand for telephone calls between the US and African countries show strong dynamic effects. Finally, we find that telephone demand between African countries and the US responds positively to income and trade. Our results have interesting research and policy implications.     

A convenient test of functional form for pooled econometric models

This paper demonstrates a parametric test of specification that can be used in validating econometric models employing pooled time series and cross-section data with fixed effects. This Lagrange multiplier test allows for the simultaneous testing of proper model functional form and the presence of nonspherical disturbances, using a combination of the Box-Cox transformation, the double-length regression of Davidson and MacKinnon, and the Bonferroni inducedt-test. Testing procedures are demonstrated using a model of long distance telephone demand in the United States. The illustrative model used is representative of models filed as direct testimony by telephone companies in administrative law proceedings, which usually require rigorous model validation and defenses of model results in a formal hearing room setting. The tests presented in this paper are useful to a wide variety of researchers who use pooled econometric models with fixed effects in their work.     

Pricing policy of a U.S. telephone company

This paper analyses the pricing policy of a major U.S. telephone company in 1967. A mathematical programming model was used to calculate the prices per telephone call on each of three representative routes in each of four periods of the day which would be implied by a variety of alternative maximands (consumers' plus producers' surplus, profit, sales units, sales revenue), under a variety of alternative profit constraints and assuming capacity to be either fixed (at 1967 levels) or variable. Cost and demand data were supplied by several telephone company officials, and supplemented by published material. Sensitivity analysis was carried out on the demand elasticities. A total of one hundred versions of the model are reported on. Our major conclusions include: (i) Maximising consumers' plus producers' surplus subject to a pair of minimum profit constraints provided a good approximation to 1967 policy. (ii) There is perfect discrimination between large and small users for interstate toll calls. (iii) The effect of the state regulatory commission was to keep down the price of intrastate toll calls at the expense of interstate toll calls. (iv) As alternatives to regulation, perfect competition, if attainable, would increase benefits by about $100 million whereas perfect monopoly would reduce them by $300 million per annum, within the area of the company's operations.     

Seasonality, Cointegration, and Forecasting UK Residential Energy Demand

Much of the short‐run movement in energy demand in the UK is seasonal, and the contribution of long‐run factors to short‐run forecasts is slight. Nevertheless, using a variety of techniques, including a recently developed estimation procedure that is applicable irrespective of the orders of integration of the data, we obtain a long‐run income elasticity of demand of about one third, and we are unable to reject a zero price elasticity. An econometric model is shown to provide superior short‐run forecasts to well‐known seasonal time series models ex post , but is inferior to Box‐Jenkins SARMA models when the determinants themselves have to be forecast. However, the relatively short data sample and small number of forecasts suggest caution in generalising these results.     

Mobile phone termination charges with asymmetric regulation

We model competition between two unregulated mobile phone companies with price-elastic demand and less than full market coverage. We also assume that there is a regulated full-coverage fixed network. In order to induce stronger competition, mobile companies could have an incentive to raise their reciprocal mobile-to-mobile access charges above the marginal costs of termination. Stronger competition leads to an increase of the mobiles’ market shares, with the advantage that (genuine) network effects are strengthened. Therefore, ‘collusion’ may well be in line with social welfare.      

Access regulation with asymmetric termination costs

In many telecommunications markets incumbent providers enjoy a demand-side advantage over any entrant. However, market entrants may enjoy a supply-side advantage over the incumbent, since they are more efficient or operate on innovative technologies. Considering both a supply-side and a demand-side asymmetry, the present model analyzes the effect of two regulatory regimes: an access markup for a low cost network and reciprocal charges below the costs of a high cost network. Both regimes may have adverse effects on subscribers, market shares, and profits. It can be shown that an access markup is not generally beneficial and an access deficit not generally detrimental for the respective networks.     

Modelling the demand for optional classes of local measured telephone service

There is currently a strong movement under way in the telephone industry to unbundle access charges and usage charges for local telephone service. Pricing schemes with separate access and usage charges are called measured service options. Predicting which option a household will choose involves analysing a selection problem, referred to as the choice of class of service. This choice is estimated in a nested logit framework. The three major findings of this study are that the measured options are perceived as being very similar, many personal calls may originate from businesses if the pricing structure is changed, and that the flat rate price will have to be nearly doubled before the ‘take rate’ for flat rate pricing is significantly diminished.     

Coverage area expansion, customer switching, and household profiles in the Japanese broadband access market

This paper examines the diffusion process of Internet broadband access in Japan by modeling the household choice of access modes. Estimates reveal that the characteristics of users, rather than those of the access modes, play a significant role in demand substitution across the modes. Simulation exercises indicate that had optic fibers (fiber-to-the-home; FTTH) been made available to the whole country in 2005, only 10% of households would have switched to that mode. This result implies that once chosen, the household choice of access mode persists, and that indirect network effects are an important element in decisions to adopt the new technology of broadband. Finally, policy implications are discussed.