Jerry Duvall and Michael Pelcovits.
OSP Working Paper 4 (Dec 1980) presents a regulatory proposal for transitional telecommunications markets with emphasis on AT&T's private line service (PLS) market. The authors assume the continuation of the FCC's open-entry policies and attempt to deal with the role of rate-of-return regulation in a market environment that will become increasingly competitive during the 1980s.
The authors briefly review some of the conceptual difficulties with rate-of-return or rate-base regulation as discussed in the recent academic literature. They also propose the removal of the rate of return constraint on AT&T's private line services as a way to avoid the possible economic distortions induced by rate base regulation, reduce the direct and indirect costs of regulation, and generally improve performance in the market for private line telecommunications services.