Incremental Capital Costs of Telephone Access and Local Use

by Bridger M. Mitchell

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This report develops a methodology for assessing the incremental costs of local telephone services and provides initial estimates of those costs for conditions that are typical of California markets served by the two major local exchange carriers — Pacific Bell and GTE. The author constructs a small engineering-economic model of the three functional divisions of a local exchange: the local loop (the cables connecting subscribers to the switching point), the central office switch, and the interoffice transport facilities that link switches together. The local exchange network as a whole has average incremental capital costs for network access of some $41 to $114 per line annually across the three hypothetical communities examined — larger urban areas, approximately average communities, and small urban communities. At approximately average levels of telephone use, the combined incremental capital costs of additional residential lines (access plus average usage) range from $53 annually in larger urban areas to $113 in small urban communities. Incremental capital costs of additional average business lines in the same communities range from $54 to $103 annually.

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