Pricing of telecommunications services

Recently many scholars have argued that society's welfare would be increased if the price of local telephone service were increased, and the prices for toll and enhanced telecommunication services reduced. In this paper we argue that the telecommunications policy literature has largely ignored the impact of varying technical standards on the cost-of-service. Consequently, the marginal cost of exchange service has been overstated. We also show that most work in this area has overstated the elasticity-of-demand for toll services. Taking into account quality and the appropriate elasticities, we conclude that no clear welfare gains will be achieved by raising the price of exchange service.