Economic aspects of measured-service telephone pricing

Bridger M. Mitchell

Expert InsightsPublished 1979

Examines the pricing of local telephone service, and suggests that optional rates may create transitional problems for the company that introduces them. The author applies economic analysis to telephone pricing and derives three important results: (1) There is no optional flat rate that will recover the full marginal costs of well informed flat rate subscribers who choose the lowest cost rate plan. (2) Access to the telephone network can be encouraged at limited cost by offering two rates: a lifeline rate based on a subsidized access price plus a high per-call price; and a measured service rate based on marginal access and usage costs. (3) To be economically justified, measured service rates must achieve usage cost savings that are twice the cost of measurement. Measured service should be given a trial, with plans to track costs and customer reactions. Systematic analysis is needed to ascertain its merits.

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Mitchell, Bridger M., Economic aspects of measured-service telephone pricing. Santa Monica, CA: RAND Corporation, 1979. https://www.rand.org/pubs/papers/P6321.html.
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