Price Cap Regulation of Telecommunications Services

A Long-Run Approach

by Ingo Vogelsang

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The U.S. Federal Communications Commission has initiated a discussion about the possible use of price caps to replace rate-of-return regulation for telecommunications services. As part of that discussion, this Note offers a price cap process based on profits, unlike the price caps currently under discussion, and on a process previously designed by the author. The Note considers the importance of two sometimes overlooked issues: efficient allocation of prices, and long-term conditions including formula adjustments over time. The author argues that his process would lead to the achievement of Ramsey prices and two-part tariffs, and at lower-than-current costs. An outline of proofs is provided.

This report is part of the RAND Corporation note series. The note was a product of the RAND Corporation from 1979 to 1993 that reported other outputs of sponsored research for general distribution.

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