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The practice of access pricing : telecommunications in the United Kingdom


  • Valletti, Tommasso M.


Telecommunications was the first network utility to be privatized in the United Kingdom. Drawing on 15 years'experience and discussion in the field, the author shows the economic principles of regulation in general and access pricing in particular that have been implemented. British Telecommunications (BT), formed as a public enterprise in 1980-81, was privatized in 1984. Since then the approaches to regulation have changed in three broad periods: the duoply, the transition to competition, and the recently introduced normalization phase. Dealing with each period, the author focuses on how the actual implementation of access charges are determined, at the same time providing background needed on regulatory intervention generally. Rather than follow the model of competition for a common infrastructure, Oftel [the Office of Telecommunications, the regulatory agency]has encouraged competition between alternative networks, which benefits customers but involves duplication of fixed costs. As a result of Oftel's approach, customers have seen their bills reduced 50 percent in real terms since privatization. It is difficult to know how much to attribute this remarkable result to technological progress (BT halved its workforce in the same period), to regulatory intervention (Oftel set string caps until 1997), or to competition (there are hundreds of players in the market). The author contends more weight should probably be given to the first two. Entrants have not achieved big market shares, if one considers the asymmetric regulation that has been in place for more than a decade. Indirectly, at least, competition benefited consumers by applying discipline to BT's behavior. Oftel's approach was interventionist until 1997, when it began trying to normalize the industry, as authority overseeing competition. The odds on complete deregulation are slight, and some controls on industry will remain. In the longer term, Oftel should especially monitor anticompetitive practices and collusive behavior among the bigger players (BT, CWC, and cellulator operators), The United Kingdom's interconnection experience demonstrates the complexity of the problem and its relationship to other topics, such as tariff rebalancing, access deficit, and universal service. Although a bit ad hoc, the recent incentive regulation, with a network cap based on proper accounting procedures and engineering models, may represent the best practice available today in the telecommunications industry, says the author.

Suggested Citation

  • Valletti, Tommasso M., 1999. "The practice of access pricing : telecommunications in the United Kingdom," Policy Research Working Paper Series 2063, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2063

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    References listed on IDEAS

    1. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
    2. Cave, Martin, 1997. "From cost plus determinations to a network price cap," Information Economics and Policy, Elsevier, vol. 9(2), pages 151-160, June.
    3. Armstrong, Mark, 1997. "Competition in Telecommunications," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 64-82, Spring.
    4. Valletti, Tommaso M & Cave, Martin, 1998. "Competition in UK mobile communications," Telecommunications Policy, Elsevier, vol. 22(2), pages 109-131, March.
    5. Cave, Martin, 1997. "The evolution of telecommunications regulation in the UK," European Economic Review, Elsevier, vol. 41(3-5), pages 691-699, April.
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    Cited by:

    1. Grout, Paul A., 2001. "Competition law in telecommunications and its implications for common carriage of water," Utilities Policy, Elsevier, vol. 10(3-4), pages 137-149.
    2. Joan Calzada & Francesc Trillas, 2005. "The interconnection prices in telecomunications: from theory to practice," Hacienda Pública Española, IEF, vol. 173(2), pages 85-125, June.


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