Cost Proxy Models and Telecommunications Policy: A New Empirical Approach to Regulation, Volume 1

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MIT Press, 2002 - Business & Economics - 257 pages
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The telecommunications industry defies easy characterization. The long-distance sector is highly competitive and the local exchange sector much less so, while digital transmission and switching have blurred the distinction between traditional voice communication and the transmission of video and data messages. Regulation of this industry has generally been considered necessary because it has aspects of a natural monopoly.

This book takes an empirical approach to natural monopoly and the need for regulation of telecommunications. The centerpiece of the analysis is a sophisticated engineering cost proxy model, the local exchange cost optimization model (LECOM). The book, which is largely methodological, shows that a combination of LECOM, econometrics, and simulations can aid policy discussion of such contentious issues as incentive regulation, natural monopolies, estimating the cost of interconnection among networks, and the obligation of universal service. The book presents a theoretical framework to explain the incentives of firms and the power of regulation and then uses LECOM to test the theoretical implications. The work is unusual in that it applies the foundations of regulation theory to a model of an industry rather than applying econometric theory to historical cost data. The book includes a CD-ROM containing the data set the authors used to analyze their model.


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The Local Exchange Cost Optimization Model LECOM
The Use of LECOM under Complete Information
Regulation under Incomplete Information
The Natural Monopoly Test
Optimal Regulation of a Natural Monopoly
Comparison of Performance of Incentive and Traditional
Universal Service
Strategic Crosssubsidies and Vertical Integration
Appendix A
Preparation ofLECOM Cost Data
International Applications of HCPM
References 243

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Page 244 - In the Matter of Regulatory and Policy Problems Presented by the Interdependence of Computer and Communications Services and Facilities, First Computer Inquiry, FCC Docket No.
Page 244 - Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), Final Decision, 77 FCC 2d 384 (1980), (hereinafter Computer II), recon..
Page 244 - Federal Communications Commission: Statistics of the communications industry in the United States for the year ended Dec. 31, 1942, containing financial and operating data relating to communication carriers and standard broadcast stations subject to the Communications act of 1934.

References to this book

About the author (2002)

D. Mark Kennet is Associate Professor of Telecommunications at George Washington University.