Promoting effective competition through interconnection policy

Carlos Lapuerta and William B. Tye

Telecommunications Policy, 1999, vol. 23, issue 2, 129-145

Abstract: Incumbent telephone companies argue for reliance on voluntary negotiations to determine the terms of interconnection, or alternatively for regulated access prices equal to those that an incumbent would accept voluntarily. Such prices are justified as necessary to prevent inefficient entry, based on an economic theory called the 'parity principle'. This paper shows that the parity principle is largely inappropriate for setting interconnection prices in most current contexts, and that the claimed efficiency properties of the rule are often based on flawed, static analyses. Under dynamic considerations the parity principle can threaten the development of effective competition. The authors analyse examples where the parity principle has been advocated in the United States and New Zealand, explaining that interconnection charges are best set by legal or regulatory authority based on the costs of providing network access.

Keywords: Interconnection; Parity; principle; Competition (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (6)

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