The Impact of Alternative Forms of State Regulation of AT&T on Direct-Dial, Long-Distance Telephone Rates

Alan Mathios and Robert P. Rogers

RAND Journal of Economics, 1989, vol. 20, issue 3, 437-453

Abstract: Federal and state regulatory agencies have traditionally used rate-of-return regulation to set profit and rate levels for utilities. A "price cap" framework, in which the regulatory agency sets a maximum rate below which the regulated utility has pricing flexibility, is possibly a more efficient alternative to rate-of-return regulation. This article presents an econometric analysis that compares AT&T's prices of intrastate, long-distance telephone service in states that allow AT&T pricing flexibility with those in states that do not. The results of this analysis suggest that AT&T's daytime, evening, nighttime, and weekend rates are significantly lower in states that allow pricing flexibility than in states that use rate-of-return regulation.

Date: 1989
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