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Understanding Telecommunications Costs and Pricing Dynamics

Discover industry insights on telecom costs and pricing models from Dr. David G. Loomis, Illinois State University, ranging from subscriber loop lengths to network externality considerations. Explore different approaches like Econometric Models and Engineering Models. Learn about Access Charges and their impact on local and long-distance rates.

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Understanding Telecommunications Costs and Pricing Dynamics

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  1. ECO 436 Industry Seminar Dr. David G. Loomis Illinois State University 309-438-7979

  2. Telecommunications Costs and Pricing

  3. I. LEC Costs • Depends on • distribution of subscriber loop lengths, • frequency of busy-hour calling, and • technology. • Fixed vs. Variable

  4. Three approaches to estimating: • Econometric Models • Accounting Data • Engineering models

  5. Econometric Models • Perl and Falk • Rohlfs - C&P of DC • Shin and Ying - translog cost function

  6. Accounting Data • misleading due to separations

  7. Engineering Models • Gabel and Kennet • Mitchell • FCC/BCPM Models

  8. II. Local rates bear little relationship to costs. • What would happen if priced in line with costs? • Equity considerations • Network externality

  9. III. LD Costs and Rates • Over 40% of IXC’s revenues go to LECs through access charges • Complex pricing systems with discount plans.

  10. IV. Access Charges • Part of local charges should be recovered from LD rates • Two costs - NTS /TS local network costs • Two ways to recover costs - SLC and access rates

  11. Access Charges • Bypass • Changes over time

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