Access Pricing in Telecommunications by Organisation for Economic Co-Operation and Development

By Organisation for Economic Co-Operation and Development

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We could start by trying to use a common mark up over marginal cost (since marginal cost is zero in this example, this corresponds to a common price for the two goods). In this case, the only common price which yields revenue sufficient to cover fixed costs is the price of $10 – at this price only good A is sold (and none of good B) and the total revenue is 50 × 10 = $500. At this price consumers’ surplus is zero and the monopolist earns just enough revenue to cover its fixed costs. There is no other common price that yields enough revenue to cover fixed costs.

These prices are chosen so that the telecommunications company just breaks even. If we assume that the incumbent still incurs the cost of the local loop after granting access, the principle of covering the contribution to fixed costs provides that the appropriate access charge should discriminate between the two classes of customers, with a charge of $80 for residential customers and $120 for business customers. Suppose that the regulator decides to unbundle the local loop at an undifferentiated price of $100, without discriminating between business and residential customers.

See example 5 in Box 3. 3. Two-way access pricing: interconnection of many competing networks with one central network We turn now to the problem of two-way access pricing. This situation arises when two (or more) companies must purchase essential inputs from each other. This arises commonly in the telecommunications industry. The provision of ubiquitous communication services often requires access to another company’s network in order to be able to provide communications services to a person attached to that other network.

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