Access Pricing in Telecommunications by Organisation for Economic Co-Operation and Development

By Organisation for Economic Co-Operation and Development

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ACCESS PRICING IN TELECOMMUNICATIONS – ISBN 92-64-10592-1 – © OECD 2004 37 1. THE THEORY OF ACCESS PRICING Figure 2. Link between access prices and final prices when final prices are different from marginal cost Monopolist M 2. the access prices of the monopolist should also be raised above marginal cost... 1. If the final prices of the services of the monopolist are raised above marginal cost... C 3. In order to maintain the correct relative levels of the final prices. Source: OECD. As mentioned earlier, in most cases, the total revenue of the monopolist must exceed the level that would result from marginal cost pricing.

This approach be can justified on the grounds that if any service (or group of services) earns a revenue below its incremental cost then it must be that some other service (or group of services) earns a revenue above the stand-alone cost. If it is feared 38 ACCESS PRICING IN TELECOMMUNICATIONS – ISBN 92-64-10592-1 – © OECD 2004 1. THE THEORY OF ACCESS PRICING that pricing above stand-alone cost will induce inefficient entry, the regulator may wish to ensure that the revenue for any service (or group of services) exceeds the incremental cost of that service.

Lowering the access charges relative to the level given by the previous principles can eliminate the price-marginal cost markup on the final services. It may even be necessary to lower the access charges below the marginal cost of access. Examples in the telecommunications sector In order to make these principles more concrete, this section illustrates how these principles would be applied in the telecommunications industry through the use of several worked examples. Most of these examples will focus on local loop unbundling (“LLU”).

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