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.