China IP Network Cost Proxy Model and Its Applications
5th Communication Policy Research South Conference (CPRsouth5), Xi'an, China
Posted: 15 Dec 2010
Date Written: December 6, 2010
LECOM and HCPM are not used to the China with big differences between city and country, eastern and western part. The paper describes the modeling process of IP Network Cost Proxy Model (INCPM) in detail. The procedure of the estimation of telecom business cost is divided into two processes: the simulation of network construction cost in which technical factor being introduced to substitute the effect of network elements that makes the cost functions only consist of scenario variables and become a simple, open and transparent tool; the estimation of telecom service annual cost which consists of network elements depreciation, cost of operation and maintenance, and expenditure of marketing and sales avoiding to get data from accounting of enterprises.
The results of simulations and estimations to the two dominant IP services in China, voice and broadband access, demonstrate that natural monopoly still in these IP services; and also demonstrate that there are cross-subsidies from the voice to the broadband access and from developed areas to undeveloped areas. The paper gives a revised Ramsey pricing formula which proves the cross-subsidy be reasonable. In order to promote the universal broadband access to fill in the digital divide in China, the cross- subsidy is necessary; the floor price protection of voice service may be need; therefore, the new entrants should take obligation of the universal broadband access.
Keywords: IP network, cost proxy model, simulation, Ramsey pricing, cross-subsidy, telecom policy
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