Competition and Cross-Subsidization in the Telephone Industry

by Leland Johnson

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The purposes of this study are (1) to show why the Federal Communications Commission has permitted progressively greater competition in interstate telephone services, (2) to assess the Commission's ability to handle problems of cross-subsidization that have arisen from competition, by drawing from the history of its major rate investigations, (3) to trace the policy implications of this experience for the continued rate regulation of interstate telephone service, and (4) to examine the conflict between economic efficiency and the desire to maintain low local telephone rates--a conflict exacerbated by the fact that competition makes less sustainable the subsidization of local service by interstate services.

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