Long Distance

1
Long Distance

• Economics of Telecommunications
• 10/12/04

2
What does the long distance market look like in
U.S.?

• Total revenues 99b in 2001 down from 110b in 2000
• Key Players ATT, MCIWorldcom, Sprint and RBOCs
  with market shares of 38, 24, 9 and 6
  respectively
• 1000 small carriers total 24 of market
• Moving toward increased concentration

3
Residential telephone user

• In 2002, average telecommunications spending 83
• 12 on long distance
• 36 local
• 35 wireless

4
Long distance prices

• Prices falling rapidly
• Competition or reduction in access charges?
• Leads to higher local rates and lower long
  distance

5
Distance premium undermined

• End of government protection
• Growth of new capacity
• Resale of spare capacity
• The Internet - VOIP
• Mobile/satellite carriers

6
Building new capacity

• Excess capacity provides pricing flexibility
• Cables are a sunk cost
• Marginal costs approach zero

7
The Internet

• Important use of spare capacity
• Between US and Japan, Internet capacity greater
  than voice

8
Mobile and satellite carriers

• Lowering price of international calling
• Long distance calling available in remote areas

9
Pricing

• Characteristics of new pricing structure
• end of cross subsidy
• shift from charging per call to charging for the
  basic use of the network (higher local and lower
  long distance)

10
End of Cross Subsidy

• Movement to cost-based pricing means higher local
  rates and lower long distance rates
• Abroad, rapid change in pricing structure leading
  to upheaval in developing countries
• Governments, not local telephone companies,
  depend on settlement revenues