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Working Paper

Bypass of the Local Exchange: A Quantitative Assessment

Gerald Brock.  

OSP Working Paper 12 (Sept 1984) explores the incentives for bypass created by the imposition of usage-based access tariffs to recover the portion of local revenue requirements assigned to the interstate jurisdiction.  “Bypass” is defined as the use of alternative facilities between a user’s location and the long distance carrier’s Point of Presence to avoid usage-based access charges.  The alternative facilities may be either a local private line obtained under the carrier’s special access tariff or a privately constructed facility.

Brock argues that the quantity of bypass which will occur as a result of any particular access tariff is an important factor that must be considered in designing access tariffs to replace the separations and settlements process.  He observes that, if usage based access tariffs induce large amounts of bypass, then the actual revenue obtained from such tariffs will be far less than the expected revenue computed by multiplying the currently used number of access minutes by the access charge.

Brock concludes that current revenue requirements probably can be met through increases in access charges but the necessary increases will be large due to the low efficiency of raising revenue through charges that are avoidable using bypass facilities.  He estimates that, after taking bypass into account, a 70 percent increase in nontraffic-sensitive (NTS) charges would be necessary to raise the current level of NTS revenue requirement.

Issued: September 1984

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