The Pricing of Customer Access in Telecommunications

Debra J Aron and Steven S Wildman

Industrial and Corporate Change, 1996, vol. 5, issue 4, 1029-47

Abstract: Is the loop, which provides customers with access to the switched network, a service in its own an right, or is it purely an input into the production of the final service, which is usage of the switched network? Agreeing with Kahn and Taylor that the question of whether the loop is an economic good is irrelevant to the pricing issue, this paper goes on to claim that pricing at marginal cost is not an appropriate welfare maximization rule due to network externalities that make the private benefit of access less than the social benefit. Socially efficient pricing is likely to involve pricing below the marginal cost of access to some consumers and above the marginal cost of access to others. One implication is that a contribution to the local loop from Interexchange Carriers (IXCs) or IXC customers may be optimal. Copyright 1996 by Oxford University Press.

Date: 1996
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