IDEAS home Printed from https://ideas.repec.org/a/eee/iepoli/v25y2013i1p1-17.html
   My bibliography  Save this article

Pooling, a missing element in the rate of return and price cap regulation debate: A comparison of alternative regulatory regimes

Author

Listed:
  • Glass, Victor
  • Stefanova, Stela
  • Sysuyev, Roman

Abstract

In March 2010 the Federal Communications Commission (FCC) issued the National Broadband Plan (NBP) detailing strategic proposals to increase broadband availability in the US. One of the sweeping suggestions of the NBP is to convert all incumbent local exchange carriers from rate-of-return (RoR) regulation to price cap regulation. Most of these RoR carriers are small Rural Local Exchange Carriers (RLECs) operating in sparsely populated, isolated territories of the US. Since AT&T’s divestiture they have participated in revenue and cost sharing pools which have served as an effective mechanism for reducing unsystematic business risk. We stress that pooling makes both rate of return and price cap regulation operational in RLEC territories and has to be considered in the policy debates. Using cost and demand data from RLECs, we show that if FCC’s suggestion was implemented under current price cap rules, many RLECs would likely face financial distress within 3years of the regulatory regime change. We further show that allowing pooling arrangements under any regulatory regime could improve market efficiency. We suggest that potential efficiency gains are greatest when RLECs within a pooling arrangement have the option of remaining under RoR regulation or volunteering to move to a form of incentive regulation.

Suggested Citation

  • Glass, Victor & Stefanova, Stela & Sysuyev, Roman, 2013. "Pooling, a missing element in the rate of return and price cap regulation debate: A comparison of alternative regulatory regimes," Information Economics and Policy, Elsevier, vol. 25(1), pages 1-17.
  • Handle: RePEc:eee:iepoli:v:25:y:2013:i:1:p:1-17
    DOI: 10.1016/j.infoecopol.2013.01.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167624513000048
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lehman, Dale E & Weisman, Dennis L, 1996. "Telephone Pools and Economic Incentives," Journal of Regulatory Economics, Springer, vol. 10(2), pages 123-146, September.
    2. Crew, Michael A & Kleindorfer, Paul R, 1996. "Incentive Regulation in the United Kingdom and the United States: Some Lessons," Journal of Regulatory Economics, Springer, vol. 9(3), pages 211-225, May.
    3. Vogelsang, Ingo, 2002. "Incentive Regulation and Competition in Public Utility Markets: A 20-Year Perspective," Journal of Regulatory Economics, Springer, vol. 22(1), pages 5-27, July.
    4. David Sappington & Dennis Weisman, 2010. "Price cap regulation: what have we learned from 25 years of experience in the telecommunications industry?," Journal of Regulatory Economics, Springer, vol. 38(3), pages 227-257, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Rural Local Exchange Carriers; Rate of return regulation; Price cap regulation; Pooling; National Broadband Plan;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:iepoli:v:25:y:2013:i:1:p:1-17. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505549 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.