TELECOMMUNICATIONS DEMAND IN THEORY AND PRACTICE by LESTER D. TAYLOR Department of Economics, University of Arizona, Tucson, Ariz,, U.S.A. KM *' '? il Щ V'Jf] KLUWER ACADEMIC PUBLISHERS DORDRECHT / BOSTON / LONDON
TABLE OF CONTENTS LIST OF FIGURES LIST OF TABLES PREFACE xi xiii xvii CHAPTER 1 / INTRODUCTION AND OVERVIEW 1 I. Background 1 II. Recent Methodological Developments 3 III. Conferences and Special Volumes 6 IV. Plan of Book 7 CHAPTER 2 / THE THEORY OF TELEPHONE DEMAND I: BASIC RESULTS 8 I. Some Basic Considerations 8 II. Recent Contributions to the Theory of Telephone Demand 10 III. Consumption Externalities and Communities of Interest 23 IV. A Framework for Analyzing Telephone Demand 24 V Relationships Between Price and Income Elasticities for Access and Usage 31 VI. Option Demand 33 CHAPTER 3 / THE THEORY OF TELEPHONE DEMAND II: EXTENSIONS OF BASIC RESULTS 36 I. The Duration and Distance Dimensions of Telephone Demand 36 II. Time-of-Day Pricing 48 III. Operator-Handled Versus Direct-Dialed Calls 50 IV. Some Further Dynamics 51 V The Usage of Price Deflated Revenues 54 VI. Firm vs Market Elasticities 56 VII. Logistic Approaches to Forecasting 61 VIII. Concluding Comments 63 CHAPTER 4 / BUSINESS TELECOMMUNICATIONS DEMAND 65 Vll
viii Table of Contents I. Some Basic Considerations 65 II. A General Model of Business Demand 68 III. Some Specific Models of Business Demand 73 IV. Business Demand From the Point of View of the Local Exchange Company 80 V. Wrap-up and Summary 83 CHAPTER 5 / RECENT STUDIES OF RESIDENTIAL ACCESS DEMAND 85 I. The 1983 Perl Study 86 II. Southwestern Bell's Residential Access Demand Model: Taylor and Kridel (1990) 96 III. Bell Canada's Residential Access Demand Model 107 IV. Train, McFadden, and Ben-Akiva (1987) 111 V. Evaluation 125 CHAPTER 6 / RECENT STUDIES OF TOLL DEMAND 129 I. Toll Demand in Ontario and Quebec 130 II. Point-to-Point Toll Demand 132 III. The Demand for Interstate Access Minutes 141 IV The Demand for Bypass of the LEC 145 V Wrap-up 147 CHAPTER 7 / THE DEMAND FOR LOCAL CALLS AND RELATED LOCAL SERVICES 149 I. Local Calling and the Choice Between Flat-Rate and Measured Service 149 II. Bypass Via EAS: Kridel (1988) 163 III. Results From the GTE Measured-Service Experiment: Park, Wetzel, & Mitchell (1983) 169 IV The Demand for Custom-Calling Features 174 CHAPTER 8 / BUSINESS TELEPHONE SYSTEM DEMAND, I. Total-Bill and Socio-Demographic Effects 193 II. Business Telephone System Demand 193 III. Total-Bill Effects 200 IV Socio-Demographic and Other Characteristics of Telecommunications Demand 204
Table of Contents ix CHAPTER 9 / CONSUMPTION EXTERNALITIES 212 I. The Network Externality and the Optimal Pricing of Telecommunications Services 213 II. An Alternative Measure of the Network Externality 218 III. Distributional Equity 222 IV. Some Remaining Questions 230 V. Call Externalities 231 VI. Empirical Evidence Regarding Consumption Externalities 236 VII. Conclusions 238 CHAPTER 10 / PRICE ELASTICITIES IN THE HEARING ROOM: THE PROMISE AND LIMITS OF ECONOMETRIC ANALYSES OF TELECOMMUNICATIONS DEMAND 241 I. The Structure of an Econometric Study 242 II. Econometrics in the Hearing Room: Some Guiding Precepts 251 III. Some Pitfalls in Using Econometric Models 252 CHAPTER 11 / EVALUATION AND CONCLUSIONS 255 I. What We Appear to Know About the Structure of Telecommunications Demand 256 II. Problem Areas 266 III. Demand Analysis in a Competitive/Partially Regulated Environment 270 APPENDIX 1 / THE PRE-1980 EMPIRICAL LITERATURE ON TELEPHONE DEMAND: ACCESS, LOCAL SERVICE, AND INTERSTATE TOLL 271 I. The Demand for Access 271 II. The Demand for Local Use 283 III. Long-Haul (Interstate) Toll Demand 295 APPENDIX 2 / THE PRE-1980 EMPIRICAL LITERATURE ON TELEPHONE DEMAND: INTRASTATE TOLL, WATS AND PRIVATE LINE, COIN, ETC. 315 I. Intrastate Toll Demand 315 II. WATS and Private Line 328 III. Coin Stations 332
x Table of Contents IV. Vertical Services 334 V The Impact of Service-Connection and Other Nonrecurring Charges 336 VI. International Demand 338 VII. Yellow-Pages Advertising 341 VIII. Noneconometric Approaches to Forecasting Telephone Demand 345 APPENDIX 3 / NETWORK EXTERNALITY AND THE DEMAND FOR RESIDENTIAL LONG-DISTANCE TELEPHONE SERVICE: A COMMENT 349 I. A Model of Toll Demand 349 II. Isolation of the Network Externality 355 III. Conclusions 368 BIBLIOGRAPHY 370 INDEX 398