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Cross-Subsidization in Telecommunications: Beyond the Universal Service Fairy Tale

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  • Kaserman, David L
  • Mayo, John W
  • Flynn, Joseph E

Abstract

For many years, regulatory policy in the telecommunications industry has been strongly influenced by the belief that the traditional system of cross-subsidizing local rates by long distance has served to promote the goal of universal service. In this paper, we examine both the theoretical and empirical support for this widely accepted relationship and find it wanting in each. The results indicate that the cross-subsidization mechanism bears no causal relationship to the policy goal of universal service. Instead, both the subsidy levels and subscription rates appear to be determined by other economic variables, such as those suggested by the economic theory of regulation. Copyright 1990 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 2 (1990)
Issue (Month): 3 (September)
Pages: 231-49

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Handle: RePEc:kap:regeco:v:2:y:1990:i:3:p:231-49

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Web page: http://www.springerlink.com/link.asp?id=100298

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Cited by:
  1. Wimmer, Bradley S. & Rosston, Gregory L., 2005. "Local telephone rate structures: before and after the Act," Information Economics and Policy, Elsevier, vol. 17(1), pages 13-34, January.
  2. Garbacz, Christopher & Thompson, Herbert Jr., 2005. "Universal telecommunication service: A world perspective," Information Economics and Policy, Elsevier, vol. 17(4), pages 495-512, October.
  3. Sara Biancini, 2010. "Behind the Scenes of the Telecommunications Miracle: An Empirical Analysis of the Indian Market," CESifo Working Paper Series 3286, CESifo Group Munich.
  4. Ward, Michael R., . "Rural Telecommunications Subsidies Do Not Help," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association.
  5. Dino Falaschetti, 2003. "Can latent groups influence policy decisions? The case of telecommunications policy," Public Economics 0311002, EconWPA.
  6. Kaserman, David L. & Mayo, John W., 1999. "Regulatory policies toward local exchange companies under emerging competition: guardrails or speed bumps on the information highway?," Information Economics and Policy, Elsevier, vol. 11(4), pages 367-388, December.
  7. Parsons, Steve G. & Ward, Michael R., 1996. "The influence of regulation on marginal factor cost: Access markets in U.S. telecommunications," Information Economics and Policy, Elsevier, vol. 8(2), pages 95-106, June.
  8. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2006. "The Impact of "Deregulation" on Regulator Behavior: An Empirical Analysis of the Telecommunications Act of 1996," Discussion Papers 05-006, Stanford Institute for Economic Policy Research.
  9. Jeffrey Macher & John Mayo, 2012. "The World of Regulatory Influence," Journal of Regulatory Economics, Springer, vol. 41(1), pages 59-79, February.
  10. David Kaserman & John Mayo & Larry Blank & Simran Kahai, 1999. "Open Entry and Local Telephone Rates: The Economics of IntraLATA Toll Competition," Review of Industrial Organization, Springer, vol. 14(4), pages 303-319, June.
  11. Dreze, Jacques & Le Breton, Michel & Savvateev, Alexei & Weber, Shlomo, 2006. "0.19% Subsidy-Free Spatial Pricing," IDEI Working Papers 423, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. Francis Su, . "Rental Harmony: Sperner's Lemma in Fair Division," Claremont Colleges Working Papers 1999-10, Claremont Colleges.

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