DRAFT – PRELIMINARY RESULTS.pdf

This work is distributed as a Discussion Paper by the STANFORD INSTITUTE FOR ECONOMIC POLICY RESEARCH SIEPR Discussion Paper No. 01-30 Local Telephone Rate Structures: Before and After the Act By Gregory L. Rosston Stanford University And Bradley S. Wimmer University of Nevada, Las Vegas August 2002 Stanford Institute for Economic Policy Research Stanford University Stanford, CA 94305 (650) 725-1874 The Stanford Institute for Economic Policy Research at Stanford University supports research bearing on economic and public policy issues. The SIEPR Discussion Paper Series reports on research and policy analysis conducted by researchers affiliated with the Institute. Working papers in this series reflect the views of the authors and not necessarily those of the Stanford Institute for Economic Policy Research or Stanford University. Local Telephone Rate Structures: Before and After the Act Bradley S. Wimmer* University of Nevada, Las Vegas Gregory L. Rosston Stanford Institute for Economic Policy Research DRAFT – PRELIMINARY RESULTS DO NOT QUOTE OR CITE WITHOUT PERMISSION August 2002 Abstract: Large urban-to-rural and business-to-residential cross-subsidies are embedded in local rates; in fact, on average, state rates in high-cost areas are lower than rates in the state’s low-cost areas. This disparity in rates grows as the relative cost of serving rural customers within a state increases. We also find that prices in urban areas are driven more by the dispersion of costs throughout a state than they are by costs in urban areas. Residential rates are equal to less than one-half the rate paid by business users, holding costs constant. Finally, we present evidence that suggests that states have begun to rebalance business and residential rates through a combination of higher residential and lower business rates. We find that this rebalancing process is incomplete and th