Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers

Abstract

A recurring telecommunications policy debate centers on whether incumbent, vertically integrated local exchange carriers have an incentive to discriminate in price against down-stage service rivals who interconnect to their network (a price squeeze). The concern is typically voiced in one of two claims: (1) there is an incentive for an incumbent to use a price squeeze when access prices are set above long-run incremental cost; or (2) prices set at that cost are preferred for interconnection because they eliminate incentives for a price squeeze. In principle, form (1) is generally true (Proposition 1), but form (2) is generally not (Proposition 2), The proof of these Propositions reveals why pricing access at long-run incremental cost coupled with appropriate price floors in the down-stage market does eliminate the incentive to squeeze. Copyright Springer 2005Interconnection pricing, telecommunications, vertical integration,

Regulation and Innovation in the Argentinean Telecommunications Sector

“…However, it is also clear that, at the least during the transition from monopolies to competitive markets, there was a need for regulation to prevent abuses from the incumbent operator and to facilitate the entrance of new carriers. Thus, we see a number of studies that focus on the manner in which regulators have set, for example, interconnection prices in multiple countries (Yannelis, 1998) (Garcia-Murillo, 2004) (Krouse Krouse, 2005) (Gabelmann, 2001).…”