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Working Paper

The Effect of Higher Telephone Prices on Universal Service

Kenneth Gordon and John Haring.  

OSP Working Paper 10 (Mar 1984) considers whether FCC pricing reforms in the early 1980s constitute a threat to “universal” telephone service. The authors provide a legal and historical background on the universal service policy goal and examine conceptual issues surrounding the definition of universal service and economic rationales for government intervention to bring it about. They analyze demand for telephone access and survey the recent econometric evidence on the sensitivity of demand to changes in price and other demand-influencing factors.

They also describe the price changes attributable to recent regulatory decisions, in particular those related to the FCC’s plan to implement a system of flat access charges to cover nontraffic-sensitive costs of providing telephone service.  The authors conclude that, because the net price effects of these recent policy changes are not large, the changes will be phased in over several years, and that demand for access is relatively insensitive to price changes, any effects on telephone subscribership are likely to be quite small.

Issued: March 1984

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