Are Regulators Forward-Looking? The Market Price of Copper Versus the Regulated Price of Mandatory Access to Unbundled Local Loops in Telecommunications Networks

The Enduring Lessons of the Breakup of AT&T: A Twenty-Five Year Retrospective. \u27 Conference held at the University of Pennsylvania Law School on April 18-19, 2008. Around the world, since 1996, regulators have mandated that incumbent local exchange carriers (ILECs) offer competitors access to their network at regulated prices that reflect forward-looking cost. Regulated prices for unbundled network elements are based on total element long-run incremental cost (TELRIC), which in turn is calculated using engineering models that estimate the costs of a hypothetical carrier employing the most efficient telecommunications technology currently available and the lowest cost network configuration, given the existing location of the ILEC\u27s actual wire centers. These cost models require detailed estimates of the equipment and installation prices of the numerous components that are used in a telecommunications network. When there is uncertainty about how these prices will change over the period for which costs and prices are required, the resulting cost estimates used for setting the regulated prices of unbundled network elements can be very inaccurate. Similarly, when regulators in other jurisdictions are considering such rates as benchmarks, it is necessary to make adjustments to account for such large differences in critical input prices, so that the benchmark rates will be representative of the costs that actually will be incurred by efficient carriers offering unbundled elements in those jurisdictions. The precipitous rise in the price of copper since 2003 exemplifies this need to reevaluate the inputs used by regulators in their cost model, as well as the inferences drawn from those models. These increases differ from the type of constant annual expected input price growth (or decline) situation that some cost models used outside the United States have accommodated with tilted annuity methods. Rather than a gradual anticipated price increase, copper prices escalated rapidly and are likely to remain well above the levels that regulators used to set existing loop rates. Accounting for such evidence would change the forward-looking costs of a hypothetically efficient ILEC network that one of the most prominent U.S. state regulatory commissions--the California Public Utilities Commission (CPUC)--established in 2006. Similarly, in 2007, the Commerce Commission in New Zealand employed a benchmarking methodology for the pricing of unbundled loops that failed to account for the increased price of copper. A global trend may be emerging among telecommunications regulators to ignore the input requirements of their own forward-looking cost models. Such a trend would be consistent with a version of regulatory opportunism in which regulators are forward-looking only when doing so produces lower regulated prices over time. The risk of regulatory opportunism and the high price of copper together create a strong incentive for an ILEC to replace its copper loops with optical fiber. Although some CLECS could be adversely affected by such a decommissioning of copper loops, an ILEC has no duty under U.S. antitrust or telecommunications law to keep copper loops in service for the benefit of its competitors

Specification Issues in Choice Modeling

This paper examines problems involved in the specification of the correct set of independent variables in choice models. The analytical approach is similar to Theil's use of auxiliary regressions in the case of standard linear models. The key conclusions are that the inclusion of superfluous independent variables does not affect the consistency of the correct coefficients, but exclusion of independent variables can lead to inconsistent estimates. The sources of bias are the possible correlations between included and excluded independent variables and the change in the structure of the random error terms in the utility functions. Because of the flexibility of its error structure, particular attention is given to the multinomial probit model. When independent variables are excluded, asymptotic differences among are alternative estimators arise because of different implicit error structures. The differences among the alternative estimators and the general effects of under specification are examined empirically with simulated data

The Use of Alternative Specific Constants in Choice Modeling

A specification issue which has been handled differently in various empirical applications is whether or not to include alternative specific constants in models of choice behavior. Some applications have excluded constants, others have included a full set of constants, and a third class of examples uses unique constants for some alternatives, but not all. In logit models in which each individual has the same set of alterna tives, the exclusion of constants in the estimation of models when the correct model actually has alternative specific effects leads to inconsistent estimates of the coefficients of the remaining independent variables. However, the inclusion of constants when no such effects exist does not affect the consistency of the estimates of the coefficients. These results are illustrated by simple hypothetical examples and by empirical examples. When nonratio scale variables are used in logit models, the coefficients of the independent variables are not invariant under arbitrary scale shifts when alternative specific constants are excluded. Finally, the use of models to predict the response to new alternatives and the transferability of models which might or might not include alternative specific effects is discussed. The major conclusion is that the inclusion of: a full set of alternative specific constants in logit models estimated with large samples is generally preferred over the exclusion of one or more alternative specific constants

Pricing Unbundled Network Elements and the FCC's TELRIC Rule: Economic and Modeling Issues

This paper addresses the fundamental question of what costs and prices would look like under competitive conditions and how close the FCC's total element long-run incremental cost (TELRIC) pricing rules allow one to approximate such competitive outcomes. We consider: what types of firms would enter in competitive network industries, what effect would new entry have on the asset values and prices of incumbent firms, and what impact would competition have on (1) the types and vintages of capital equipment, (2) prices for that equipment, and (3) conditions in the operating environment? The paper concludes by highlighting alternative pricing proposals offered by contending parties and identifying the major drivers that explain what have proven to be large differences among competing proposals.

The vector properties of the variables and factors of a factor analysis solution /

Bibliography: leaf 22.Mode of access: Internet

Relationships Between Social-Psychological Variables and Individual Travel Behavior

The purpose of this paper is to introduce variables ·which may yield explanations of travel behavior which go beyond the economic and transportation-related explanations of existing models. This analysis explores whether improvements can be made in the understanding of individual travel behavior and in the predictive power of travel demand models. This applied emphasis extends the author's previous work which demonstrated how attitudinal and behavioral information can be used to structure the development and marketing of transportation improvements (Fielding, 1972; Fielding, et.al., 1976)