Cross-Subsidies in Telecommunications: Roadblocks on the Road to More Intelligent Telephone Pricing

Abstract

A decade ago, Alfred Kahn challenged regulators to adopt more efficient telephone pricing policies. They have yet to respond and instead have maintained a system of inefficient cross-subsidies. While some argue that the current system promotes universal telephone service, a careful examination reveals that the cross-subsidies do not further that goal. Professors Kaserman and Mayo argue that regulators maintain the current system because they believe that its pattern of cross-subsidization benefits a politically influential class-local residential customers. Kaserman and Mayo contend, however, that the regulators are wrong. the benefits from the current cross-subsidies are so diffused that abolishing them will not ultimately affect individual customers.