An Empirical Analysis of Regulator Mandates on the Pass Through of Switched Access Fees for In-State Long-Distance Telecommunications in the U.S.

35 Pages Posted: 10 Sep 2010 Last revised: 20 Jun 2013

See all articles by Debra J. Aron

Debra J. Aron

Navigant Economics; Ankura Consulting Group; Northwestern University

David E. Burnstein

LIME Telecom

Ana C. Danies

Navigant Economics

Gerry Keith

Navigant Economics

Date Written: June 19, 2013

Abstract

In the parlance of regulatory economics, “pass-through” refers to the effect of a change in an incremental cost – generally, the effect of a change in a regulated input price – on the retail price of a good or service. In this paper we examine retail long distance telephone service prices in the United States for evidence of pass-through of the switched access fees paid by long distance telephone companies to local exchange carriers. We estimate the degree to which long distance companies pass through to their customers reductions in access rates, and we examine whether mandates imposed by regulators on long distance companies to pass through access fee reductions to customers affect the extent of pass-through. We evaluate annual panel data on intrastate long-distance revenues, access expenses, and minutes of use from 2004 to 2008 in each of the 50 states in the U.S. using a proprietary and detailed data set. We leverage the fact that some states have accompanied access rate reductions with pass-through mandates, and others have not. Using standard multivariate regression techniques we find that the market induces carriers to pass-through most of the reduction in access rates, and that this market-based pass-through is consistent with “full” (100%) pass-through in the states that have undergone regulatory access reform. We also find that a regulatory mandate on long distance companies to pass through access rate reductions has no statistically significant effect on the magnitude of access fee pass-through, supporting the economic hypothesis that pass-through is driven by incentives for profit maximization and by competitive forces.

Keywords: pass-through interconnection access fees

Suggested Citation

Aron, Debra J. and Aron, Debra J. and Burnstein, David E. and Danies, Ana C. and Keith, Gerry, An Empirical Analysis of Regulator Mandates on the Pass Through of Switched Access Fees for In-State Long-Distance Telecommunications in the U.S. (June 19, 2013). Available at SSRN: https://ssrn.com/abstract=1674082 or http://dx.doi.org/10.2139/ssrn.1674082

Debra J. Aron (Contact Author)

Navigant Economics ( email )

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Ankura Consulting Group ( email )

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Northwestern University

Evanston, IL

David E. Burnstein

LIME Telecom ( email )

Grand Cayman
Cayman Islands

Ana C. Danies

Navigant Economics ( email )

1603 Orrington Ave.
Suite 1500
Evanston, IL 60201
United States

Gerry Keith

Navigant Economics ( email )

1801 K Street, NW
Suite 500
Washington, DC 20006
United States

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