Optimal Telecommunications Tariffs and the CCITT

International telephone service providers must decide how to apportion their call revenue between the orgina-ting and receiving networks. The CCITT makes detailed recommendations as to how this should be done. However it is not merely a matter of accounting. Tariffs also create incentives for the administrations own pricing behaviour. Creating the right incentives through appropriate tariffs is crucial to inducing an efficient outcome. This article characterizes optimal tariffs and compares them with the recommendations of the CCITT. Briefly the optimal tariff consists of a flat-rate price per circuit plus a trafficunit price plus a fixed component transfer. Optimal tariffs are time-dependent, depending upon whether demand is peak or off-peak. This characterization enables an assessment of the extent to which current procedures may be inefficient. With appropriate interpretation, our results are applicable to a wide range of telecommunication services.