Objective. Estimate market impacts of "1+" dialing parity plus eliminating traditional LATA boundary.
Model. Measure shifts in market dominance between major competitors, by assuming price changes and estimating revenue impacts across range of demand elasticities, to reflect both changed rates and market shares. Also consider changes to revenues collected by U S WEST through carrier access charge (CAC).
Scope. Limited to residential toll calls carried by AT&T and U S WEST. Does not examine commercial toll customers.
Data. Estimate initial residential MTS market shares for each company using data from Federal Communications Commission.1
Proprietary Restrictions. Model relies upon proprietary work provided to Montana Public Service Commission in staff memorandum dated April 23, 1996. Actual market shares cannot be revealed. Analysis is intended simply as an illustration.
Assumptions. Assume all the reported originating intraLATA toll calls (three-minutes each) are residential, carried by U S WEST.
Assumption provides estimate of residential MTS billed minutes of use (BMOU) for U S WEST. To estimate AT&T's residential MTS BMOU, assume AT&T carries 70 percent of the reported interLATA originating toll calls (three minutes each).2
Toll costs for each carrier are assumed to equal carrier access charges (CACs) for U S WEST.
First-stage Analysis. Study the impacts of various equilibrium price levels on revenues for U S WEST and AT&T.3 Begin by estimating base-case residential MTS revenues for U S WEST and AT&T.4 Then, while holding constant one or the other's market, we alternately assume one or the other's toll prices prevail to set the equilibrium price. Elasticity and CAC revenue impacts excluded at this stage. First Stage results are shown in Table 2.
Second-stage Analysis. To add a dose of reality, analyze impacts of CAC revenues and a range of demand elasticities, which allow toll demand to grow in response to falling prices, which in turn yields "feedback effects on MTS revenues (and CAC revenues for U S WEST). Second-stage results shown in Table 3.
1FCC Report 43-08, ARMIS Operating Data Report for Jan 1995 to Dec 1995, CC Dkt. 86-182, AAD 91-46, Submission 1, April 1, 1996.
2FCC, Statistics of Communications Common Carriers, 1994/95 Ed.
3We designed the model independently, but benefited by reference to Weisman, Dennis, "Regulation and the Vertically Integrated Firm: The Case of RBOC Entry into InterLATA Long Distance," Journal of Regulatory Economics, Winter 1995, Vol. 8, pp. 249-266.
4We multiply estimated BMOU for each company by an arithmetic average of their tariffed Montana residential MTS rates (proprietary nature of actual data limits presentation here to a simple arithmetic average).
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