The Pricing of Pole Attachments: Implications and Recommendations

Abstract:     
Today, a patchwork of regulation applies to the rates, terms, and conditions cable and telephone companies pay for access to poles, ducts, and conduits. Concerned about the differences in pole attachment rates paid by communications carriers, the Federal Communications Commission ('FCC') is currently considering whether it should adopt a new, uniform rate for pole attachment services for 'broadband Internet access services.' In this Paper, we explore the optimal method of establishing rates for utility poles - Ramsey pricing - where the fixed costs of poles are allocated to firms based on the relative demand elasticities for attachments. We find that while historical differences in rates might have been compatible with Ramsey pricing when the service offerings of firms differed substantially, technological convergence dictates that these firms should pay a unified rate. Moreover, we present evidence indicating that optimal pricing principles would prescribe a significantly lower attachment rate for all broadband networks than the rates currently applied to these firms. Such a result would promote overall economic efficiency and increase consumer welfare.

Number of Pages in PDF File: 25

Keywords: Pole Attachments, Ramsey Pricing, broadband

JEL Classification: K23, L51, L94, L96, L98, O38

working papers series