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Emerging Telecommunications Networks

The International Handbook of Telecommunications Economics, Volume II

Edited by Gary Madden

This major reference work provides a thorough and up-to-date survey and analysis of recent developments in the economics of telecommunications. The Handbook serves both as a source of reference and technical supplement for the field of telecommunications economics.
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Chapter 7: Product bundling and wholesale pricing

Timothy J. Tardiff


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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