Regulation vs. Competition in Telecommunications

Standard microeconomics tells us that enforcing competition raises social welfare. Second we know form the theory of natural monopoly regulation that Ramsey-pricing will maximize your welfare function. This article tries to analyze a multiproduct enterprise producing in both, markets with competition and markets without competition. The latter ones are considered to be subject to regulation. The article starts with a short survey of EU-standards concerning telecommunications. Thus, the first part analyzes the EU- directives concerning competition, cost accounting and regulation. According to EU-directives 95/62 and 92/44 regulating telephony and leased lines respectively, we can see that all non-competition tariffs have to be cost based. This simply means that prices have to be justified by means of a proper cost accounting system. Unfortunately the standards are not very detailed. This has lead to different cost accounting principles in different European countries reaching from simple methods to complex process costing schemes. Actually, this raises the important question of the information needed by the regulating authority in telecommunications.