Three essays on the regulated telephone industry

This dissertation is a study of a set of economic issues relating to the regulated local telephone industry.; Chapter I is a review of market entry incentives in a market characterized by regulated prices that depart far from cost-causation. Usage-based prices for interexchange access recovered the costs of facilities whose costs are largely usage insensitive. This created an incentive for entry by competitive access providers who could undercut the prices of the local exchange companies for high-volume customers. The evidence of this chapter confirms that the regulated pricing structure contributed significantly to the pattern of entry.; Chapter II is a study of support for high cost telephone companies. High cost support assists companies with expenses that are significantly above the national average, so that their subscriber rates remain reasonable. By reducing the effective cost of expenditures on the network, however, this support creates an incentive to overbuild the local network when a diminished portion of costs must be recovered from the company's own customers. This effect is shown to be significant. Further, preferred technology choices may be skewed where the costs of network elements are subsidized at different rates. This effect is also demonstrated, although the magnitude is weaker due to inflexibilities in network design.; Chapter III examines the effectiveness of support for high cost companies in extending subscribership. This is compared to support for low income consumers, and to the internal cross-subsidies to high cost areas that are embedded in the rates of many large carriers. The analysis suggests that the efficacy of universal service supports is low and declining over time. Support that is targeted to individuals is more effective than support for high cost companies.