Aligning Price Regulation with Telecommunications Competition

Abstract

Since the 1990s, local exchange telecommunications carriers (LECs) have been subject to incentive regulation plans. This paper discusses theoretical and practical aspects of the evolution of price regulation as retail competition increases and as regulators mandate extensive availability of wholesale services. Particular issues include (1) adjusting price change/productivity expectations as the proportion of services subject to price regulation decreases, (2) whether earnings sharing is compatible with more limited price regulation, and (3) compatibility among wholesale and retail price and quality regulation. The paper concludes by describing recent developments in specific jurisdictions and recommends directions for future incentive regulation.