The International Handbook of Telecommunications Economics, Volume II
Edited by Gary Madden
Chapter 7: Product bundling and wholesale pricing
Timothy J. Tardiff INTRODUCTION The demand for telecommunications services is growing along many dimensions. Not only are the volumes of old services growing at healthy rates, for example, voice traﬃc increases at a rate of 6 per cent to 7 per cent annually (Lenahan, 1999), new services have emerged and are growing even more rapidly. For example, in the United States (US), volumes of data traﬃc now exceed voice, and these volumes are growing at an annual rate of 45 per cent.1 As a result, consumers must select from a proliferating array of old and new services, as well as diﬀerent payment options. Further, ﬁrms that formerly operated in separate markets are competing by oﬀering packages of services that cut across the increasingly indistinct boundaries between these markets. Examples include the packaging of local and long-distance traﬃc; oﬀering of both voice and highspeed data services, sometimes over the same telephone line or cable television connection; packaging of wireless and wireline services; and packaging of telephone, video and Internet access over the same highspeed facility. Clearly these trends are producing complex product oﬀerings and pricing structures. As a result, the familiar prescription (or description) in economics that price equals cost in competitive markets is no longer adequate to describe the richness of competitive outcomes in telecommunications. In order to understand these outcomes and the concomitant pricing patterns, it is necessary to consider the cost structures of ﬁrms oﬀering these services. Cost structures and...
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