The Massachusetts Department of Public Utilities (DPU) has decided to use separate cost methods 1) to determine whether a local telephone service is subsidized, and to set price floors for essential monopoly services provided by NYNEX, a local exchange carrier (LEC); and 2) to set rates and price floors for competitive services.
According to the DPU, Total Service Long Run Incremental Cost (TSLRIC) was undisputed as the proper method of testing for subsidies between services. Because the TSLRIC method ensures that similar customers pay an equal portion of service-specific fixed costs, the DPU also found it appropriate for setting prices for monopoly services. Pricing competitive services, on the other hand, requires the flexibility to recover service-specific costs permitted under the Long Run Incremental Cost (LRIC) method. The DPU said that the two-part pricing approach, in conjunction with a freeze on NYNEX's basic residential service rates would prevent the carrier from recovering "disproportionate amounts of contribution from monopoly customers." It also expects that any attempt by NYNEX to price services too far above the TSLRIC will be met by a response from competitors. Re IntraLATA and Local Exchange Competition in Mass., D.P.U. 94-185, Aug. 29, 1996 (Mass.D.P.U.).
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