Efficient Interconnection Charges and Capacity-Based Pricing

Abstract:     
Capacity-based interconnection (CBI) prices vary exactly with the costs a network provider incurs when supplying an interconnecting party. That is, they equal incremental costs, rather than being averaged over any output measure. We argue such prices (1) are as practicable and more efficient than per minute rates based on long run incremental cost, (2) are more efficient than bill and keep, and (3) with mark-ups for cost recovery, are a practical and relatively efficient means of pricing wholesale interconnection services, being well-suited to both circuit and packet-based networks. [A shorter version of this paper was subsequently published in Journal of International Economics and Economic Policy.]

Number of Pages in PDF File: 32

Keywords: Capacity-based interconnection, bill-and-keep, long run incremental cost pricing, call termination

JEL Classification: L51, L96

working papers series