Regulating Telecommunications : Lessons from U.S. Price Cap Experience
Price cap regulation uses a formula, set in advance, to determine the price increases for a firm's services for a period of several years. During this period, the firm may keep all the benefits of its incremental productivity gains. Customers...
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| Format: | Viewpoint |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/1996/01/441234/regulating-telecommunications-lessons-price-cap-experience http://hdl.handle.net/10986/11639 |
| Summary: | Price cap regulation uses a formula, set
in advance, to determine the price increases for a
firm's services for a period of several years. During
this period, the firm may keep all the benefits of its
incremental productivity gains. Customers can also benefit
because the price cap formula may cause prices to rise less
rapidly during the period. The sharpened incentives created
may encourage the firm to offer innovative new services.
After the period ends, regulators may order price reductions
that reflect productivity gains during the period. This Note
presents the advantages of using price cap over
rate-of-return (ROR) in regulating telecommunications
carriers. It reviews the U.S. experience with price caps,
focusing primarily on federal regulation. It then briefly
discusses the lessons of this experience for developing countries. |
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