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.

This report is part of the RAND Corporation Report series. The report was a product of the RAND Corporation from 1948 to 1993 that represented the principal publication documenting and transmitting RAND's major research findings and final research.

This research in the public interest was supported by RAND, using discretionary funds made possible by the generosity of RAND's donors, the fees earned on client-funded research, and independent research and development (IR&D) funds provided by the Department of Defense.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.