Skip to main content
SpringerLink
Log in

Local measured service and the attributes of a sound rate structure

  • Published:
Journal of Economics and Finance Aims and scope Submit manuscript

Abstract

Most U.S. jurisdictions use flat rates (FR) for local telephone service pricing. This paper explores why a majority of those exposed to usage-sensitive pricing or local measured service (LMS) generally prefer it to FR. One reason may be LMS promotes value-maximizing behavior for both the provider and the customer. Some customers may prefer FR, even if LMS is value maximizing, out of concern that gainers either cannot or will not compensate losers. Another possibility is LMS is not a value-maximizing option. This paper systematically compares LMS with FR, using the attributes of a sound rate structure.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Alleman, James H. The Pricing of Local Telephone Service. U.S. Dept. of Commerce, Office of Telecommunications, April 1977.

  • Beauvais, Edward C., Richard D. Birbichler, John R. Jester, Douglas H. Merchant, and Michael M. Murphy. “The Financial Effects of Local Measured Service.” InPerspectives on Local Measured Service, ed. Joseph A. Baude et al. Telecommunications Industry Workshop, Kansas City, Missouri, 1979, 81–117.

  • Beauvais, Edward C. “Metering Costs and Measured Service: An Evaluation of Efficiency Gains from Usage Sensitive Pricing of Telephone Service.” InChanging Patterns in Regulation, Markets, and Technology: The Effect on Public Utility Pricing, ed. Patrick C. Mann and Harry M. Trebing, 223–267. East Lansing, MI: Michigan State University, 1984.

    Google Scholar 

  • Bonbright, James Cummings.Principles of Public Utility Rates. New York: Columbia University Press, 1961.

    Google Scholar 

  • Bonbright, James Cummings, Albert L. Danielsen andDavid R. Kamerschen.Principles of Public Utility Rates. 2nd ed. Arlington, VA: Public Utilities Reports, 1988.

    Google Scholar 

  • Cain, Paul, andJames M. MacDonald. “Telephone Pricing Structures: The Effects on Universal Service.”Journal of Regulatory Economics 3, no. 4 (December 1991): 293–308.

    Article  Google Scholar 

  • Cohen, Gerald. “Usage Sensitive Pricing.”Proceedings of the 1980 Rate Symposium on Problems of Regulatory Industries. Kansas City, MO: Institute for Study of Regulation, 1979, 328–339.

    Google Scholar 

  • Crew, Michael A., andRobert E. Dansby. “Cost-Benefit Analysis of Local Measured Service.” InRegulatory Reform and Public Utilities, ed. Michael A. Crew, 35–61. Lexington, MA: Lexington Books, D.C. Health & Co. 1982.

    Google Scholar 

  • Crew, Michael A., andClark D. Hammelman. “Local Measured Service Assumes a New Role.”Telephony 206 (April 16, 1984): 61–70.

    Google Scholar 

  • Danielsen, Albert L., andDavid R. Kamerschen, ed. Current Issues in Public-Utility Economics: Essays in Honor of James C. Bonbright. Lexington, MA: Lexington Books, 1983.

    Google Scholar 

  • Danielsen, Albert L., andDavid R. Kamerschen. “Economic Regulation: Old Wine in New Bottles.”Regulatory Reform: The State of the Regulatory Art: Emerging Concepts and Procedures, ed. J. Rhoads Foster et al., 45–57. Washington, D.C.: Institute for Study of Regulation, 1984.

    Google Scholar 

  • Danielsen, Albert L., andDavid R. Kamerschen, ed. Telecommunications in the Post-Divestiture Era: Essays in Honor of Jasper N. Dorsey and Ben T. Wiggins. Lexington, Massachusetts: Lexington Books, 1986a.

    Google Scholar 

  • Danielsen, Albert L., andDavid R. Kamerschen. “Market Power and Market Shares in Telecommunications.”Telecommunications in the Post-Divestiture Era: Essays in Honor of Jasper N. Dorsey and Ben T. Wiggins, ed. Albert L. Danielsen and David R. Kamerschen, 135–180. Lexington, Massachusetts: Lexington Books, 1986b.

    Google Scholar 

  • Danielsen, Albert L., and David R. Kamerschen. “The Revision of Bonbright's Principles of Public Utility Rates.” InPricing Electric, Gas, and Telecommunications Services, ed. James M. Fischer et al., 71–80. Kansas City, MO: Proceedings of the 1989 Rate Symposium, 7–10 February 1988.

  • Danielsen, Albert L., R. Carter Hill, andDavid R. Kamerschen. “Modeling State-Level Impacts of Carrier Access and Customer Line Charges.”Telecommunications in the Post-Divestiture Era, ed. Albert L. Danielsen and David R. Kamerschen, 215–241. Lexington, MA: Lexington Books, D. C. Heath, 1986.

    Google Scholar 

  • Danielsen, Albert L., Joan Dominick, andDavid R. Kamerschen. “James Cummins Bonbright: A Final Tribute to a Guiding Force in Public Utility Economics.”Public Utilities Fortnightly 117, no. 10 (15 May 1986): 43–44.

    Google Scholar 

  • Danielsen, Albert L., David R. Kamerschen, andDonald C. Keenan. “Third-Best Pricing Rules for Regulated Utilities.”Southern Economic Journal 56, no. 3 (January 1990): 628–638.

    Article  Google Scholar 

  • Ellard, Timothy D. “Dynamics of Consumer Attitudes.”Perspectives on Local Measured Services, ed. Joseph A. Baude et al., 336–339. Kansas City, MO: Institute for Study of Regulation, 1979.

    Google Scholar 

  • Faulhaber, Gerald R. “Cross-subsidization: Pricing in Public Enterprises.”American Economic Review 65 (December 1975): 966–977.

    Google Scholar 

  • Fuciu, George N. “Equity and Customer Demand for Local Service.”Proceedings of the 1982 Rate Symposium on Problems of Regulated Industries. Kansas City, MO: Institute for Study of Regulation, 1982, 336–339.

    Google Scholar 

  • Garfinkel, Lawrence, andPeter B. Linhart. “The Revenue Analysis of Local Telephone Service.”Public Utilities Fortnightly 106, no. 8 (9 October 1980): 15–21.

    Google Scholar 

  • Griffin, James M. “The Welfare Implications of Externalities and Price Elasticities for Telecommunications Pricing.”The Review of Economics and Statistics 64, no. 1 (February 1982): 59–66.

    Article  Google Scholar 

  • Griffin, James M., and Thomas H. Mayor. “The Welfare Gain from Efficient Pricing of Local Telephone Services.”Journal of Law & Economics (October 1987): 465–487.

  • Harge, Solomon. “Let's Communicate.”Proceedings of the 1982 Rate Symposium on Problems of Regulated Industries Kansas City, MO: Institute for Study of Regulation, 1982, 345–348.

    Google Scholar 

  • Hausman, Jerry, Timothy Tardiff, and Alan Baughcum. “The Demand for Optimal Local Measured Service.”Adjusting to Regulatory, Pricing, and Marketing Realities. East Lansing, MI: Michigan State University Public Utility Papers, 1983, 536–556.

  • Heilmann, Lance. “LMS, It's a Winner.”Telephone Engineer and Management (May 1986): 59–62.

  • Jensik, John M. “Dynamics of Consumer Usage.”Perspectives on Local Measured Service, ed. Joseph A. Baude et al. Kansas City, MO: Telecommunications Industry Workshop, 1979, 141–159.

  • Kamerschen, David R. “Unraveling the Mysteries of Telephone Rate Making.”Telephony 201, no. 3 (20 July 1981): 50–62.

    Google Scholar 

  • Kamerschen, David R., andDonald C. Keenan. “Caveats on Applying Ramsey Pricing.”Current Issues in Public Utility Economics: Essays in Honor of James C. Bonbright, ed. Albert L. Danielsen and David R. Kamerschen, 197–208. Lexington, MA: Lexington Books, D.C. Health and Co., 1983.

    Google Scholar 

  • Kamerschen, David R., andLoyd M. Valentine.Intermediate Microeconomic Theory. 2d ed. Cincinnati: South-Western Publishing Company, 1981.

    Google Scholar 

  • Kaserman, David L., John W. Mayo, andJoseph E. Flynn. “Cross-Subsidization in Telecommunications: Beyond the Universal Service Fairy Tale.”Journal of Regulatory Economics 2, September (1990): 231–249.

    Article  Google Scholar 

  • Kiesling John M. “Local Measured Service: A Consumer Viewpoint.”Perspectives on Local Measured Service, ed. Joseph A. Baude et al., 141–159. Kansas City, MO: Telecommunications Industry Workshop, 1979.

  • Larson, Alexander C. “The FCC's Net Revenue Test as a Predation and Cross-subsidy Safeguard.”Utilities Policy 1, no. 4 (July 1991): 319–325.

    Article  Google Scholar 

  • Mitchell, Bridger M. Optimal Pricing of Local Telephone Service. Santa Monica, CA: Rand Corporation, R-1962-MF, November 1976.

    Google Scholar 

  • Mitchell, Bridger M. “Optimal Pricing of Local Telephone Service.”American Economic Review 68, no. 4 (September 1978): 517–537.

    Google Scholar 

  • Mitchell, Bridger M. Alternative Measured-Service Rate Structures for Local Telephone Service. Santa Monica, CA: Rand Corporation, P-6495, June 1980.

    Google Scholar 

  • Mitchell, Bridger M., andIngo Vogelsang.Telecommunications Pricing: Theory and Practice. Cambridge; New York: Cambridge University Press, 1991.

    Google Scholar 

  • Murphy, Michael M. “Some Economic Consequences of Local Distribution Competition.”Proceedings of 1982 Rate Symposium on Problems of Regulated Industries. Kansas City, MO: Institute for Study of Regulation, 1982, 286–296.

    Google Scholar 

  • NARUC, “Annual Report on Utility and Carrier Regulation.” Washington, D.C.: National Association of Regulatory Utility Commissioners, 1984.

    Google Scholar 

  • Nicolaou, Christos L. “A Residential Telephone Usage Demand Study of an Exchange under Optional Local Measured Service Rates.” Ph.D. diss., The University of Georgia, 1987.

  • PMA/SBT. “Implementation of Local Measured Service in Florida, Survey and Analysis of Residential Sector.” Peter Merrill Associates/Southern Bell Telephone and Telegraph Company, Boston, MA: December 1980.

    Google Scholar 

  • Pacey, Patricia L., andLarry Singell, Jr. “Local Measured Telephone Service in the USA: A Quantitative Analysis.”Telecommunications Policy 8, no. 3 (September 1984): 249–255.

    Article  Google Scholar 

  • Park, Rolla Edward, Bridger M. Mitchell, Bruce M. Wetzel andJames H. Alleman. “Charging for Local Telephone Cells: How Household Characteristics Affect the Distribution of Calls in the G.T.E. Illinois Experiment.”Journal of Econometrics 22 (August 1983): 339–364.

    Article  Google Scholar 

  • Park, Rolla Edward, and Bridger M. Mitchell.Optimal Peak-load Pricing for Local Telephone Calls. Technical Report (March 1987): R-3404-1-RC, RAND.

  • Park, Rolla Edward, and Bridger M. Mitchell.Local Telephone Pricing and Universal Telephone Service. Technical Report (June 1989): R-3724-NSF, RAND.

  • Pavarini, Carl. “The Effect of Flat-to-Measured Rate Conversions on Local Telephone Usage.”Pricing in Regulated Industries 2, ed. John T. Wenders, 51–75. Denver, CO: Mountain States Telephone and Telegraph Co., 1979.

    Google Scholar 

  • Perl, Lewis J. “Impacts of Local Measured Service on South Central Bell's Service Area in Kentucky.” New York: National Economic Research Associates, 1985.

    Google Scholar 

  • Reuss, Robert P. “Local Measured Service: An Industry Perspective.”Perspectives on Local Measured Service, ed. Joseph A. Baude et al., 3–10. Kansas City, MO: Telecommunications Industry Workshop, 1979.

  • Rhèaume, G.C. “Welfare Optimal Subsidy-Free Prices under a Regulated Monopoly.”Economic Analysis of Telecommunications, ed. Lèon Courville et al., 319–341. Amsterdam: North Holland, 1983.

    Google Scholar 

  • Rohlfs, Jeffrey H. “Economically Efficient Bell-System Pricing.” Bell Laboratory Discussion Paper No. 138, January 1979.

  • Simon, Samuel A. “Reverse the Charges—How to Save on Your Bills.” Washington, D.C.: National Citizens Committee for Broadcasting, Telecommunications Research and Action Center, 1985.

    Google Scholar 

  • Simon, Samuel A. After Divestiture: What the AT&T Settlement Means for Business and Residential Telephone Service. White Plains, NY: Knowledge Industry Publications, 1984.

    Google Scholar 

  • Stalon, Charles G. “Navigating the Rapids of Local Measured Service.”Proceedings of the 1980 Rate Symposium on Problems of Regulated Industries. Kansas City, MO: Institute for Study of Regulation, 1980, 337–342.

    Google Scholar 

  • Sutherland, Ronald J. “Market Barriers to Energy-Efficiency Investments.”Energy Journal 12, no. 3 (1991): 15–28.

    Google Scholar 

  • Tice, William. “Getting Beyond the Myths About Customer Perception of Local Measured Service.”Telephony 207 (6 May 1985): 126–128, 138–144, 222.

    Google Scholar 

  • Wenders, John T. “Economic Efficiency of Local Measured Service.”Perspectives on Local Measured Service, ed. Joseph A. Baude et al., 59–69. Kansas City, MO: Telecommunications Industry Workshop, 1979.

    Google Scholar 

  • — “The Implications of Economic Efficiency for US Telecommunications Policy.”Telecommunications Policy 10, no. 1 (March 1986): 33–40.

    Article  Google Scholar 

  • —The Economics of Telecommunications: Theory and Policy. Cambridge, MA: Ballinger Pub. Co., 1987.

    Google Scholar 

  • Wenders, John T. “Two Views of Applied Welfare Analysis: The Case of Local Telephone Service Pricing.”Southern Economic Journal (October 1990): 340–348.

  • — “Two Views of Applied Welfare Analysis: Reply.”Southern Economic Journal 59, no. 4 (April 1993): 828–830.

    Article  Google Scholar 

  • Willig, Robert D. “Customer Equity and Local Measured Service.”Perspectives on Local Measured Service, ed. Joseph A. Baude et al., 71–78. Kansas City, MO: Telecommunications Industry Workshop, 1979.

  • Wilkinson, G.F. “The Estimation of Usage Repression under Local Measured Service: Empirical Evidence from the GTE Experiment.”Economic Analysis of Telecommunications: Theory and Applications, ed. Lèon Courville et al., 80–103. Amsterdam: North Holland, 1983.

    Google Scholar 

  • Zielinski, Charles, A. “Local Measured Service: A Regulator's Perspective.”Perspectives on Local Measured Service, ed. Joseph A. Baude et al., 11–23. Kansas City, MO: Telecommunications Industry Workshop, 1979.

Download references

Author information

Authors and Affiliations

  1. The University of Georgia, Athens, GA

    Albert L. Danielsen (Professor of Economics), David R. Kamerschen (Distinguished Professor of Economics) & Christos L. Nicolaou (Graduate Assistant of Economics)

Authors
  1. Albert L. Danielsen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. David R. Kamerschen
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Christos L. Nicolaou
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

In this paper we have drawn on our previous work in Bonbright, Danielsen, and Kamerschen (1988), Danielsen, Hill and Kamerschen (1986), Danielsen and Kamerschen (1983, 1984, 1986a, 1986b, and 1988), Danielsen, Kamerschen, and Keenan (1990), and Kamerschen (1981). We are also indebted to Dr. David B. Robinson, George R. (Bob) Willenborg (and several others) at Illinois Bell, Alex Larson (and others) at Southwestern Bell, William F. Werwaiss (and others) at SNET, and anonymous referees for their comments. However, any errors in analysis, estimation, interpretation, and the views expressed are the responsibility of the authors alone.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Danielsen, A.L., Kamerschen, D.R. & Nicolaou, C.L. Local measured service and the attributes of a sound rate structure. J Econ Finan 17, 85–103 (1993). https://doi.org/10.1007/BF02920033

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF02920033

Keywords

Search

Navigation