Discussion Papers

Lorenz Nett, Werner Neu unter Mitarbeit von Wolfgang Hürter

Effiziente Telefontarife der Deutschen Telekom im Rahmen einer Price-Cap-Restriktion                                                                                                 Nr. 159 / Juni 1996

Summary

In this paper an approach is developed that allows to assess the efficiency properties of a given tariff structure for the voice telephone service of Deutsche Telekom AG. Two measures are used as criteria for this assessment: the consumer surplus that users get from the telephone service, given the tariff structure in question, and the profit that Telekom can make with that tariff structure. For the analysis data for the year 1993 are being used. A restructuring of the tariffs existing in 1993 is carried out subject to the constraint of a price cap regime.

The analysis is carried out on the basis of a microeconomic model. The model specifies demand functions for subscriber lines and for minutes of use. These demand functions have own-price elasticities with constant values and negligeable cross-price elasticities. Since there exist no empirical studies for Germany, the values for the price elasticities of the demand functions are derived from available studies for other countries. The remaining parameterization of the demand functions is based on available information about usage of the Telekom telephone by the various user groups. We assume linear cost functions with important traffic insensitive fixed cost components. The estimates of the long-run average incremental costs that underly the calculations are obtained from cost studies and from expert interviews.

Calculations with this model show that the 1993 telephone tariff structure (to which in large measure the current structure still corresponds) exhibited - given the prevailing demand and cost conditions - a potential for efficiency gains of close to two billion Deutsch Mark. This would have been possible merely by a restructuring of tariffs allowed under a price-cap regime without any reduction in the overall level of tariffs. It is shown that the restructuring would benefit Telekom but also private household users as well as business users. According to the basic reference calculation, Telecom would have increased its profits by 900 mio DM and private household users would have increased their aggregate consumer surplus by 515 mio DM and business users by 460 mio DM. A further result of the analysis is that differentiating the monthly rental charge according to user groups (e.g. increasing that for business users) is a convenient way of inducing transfers between the different user groups that might be necessary to avoid negative income distribution effects and make the restructuring socially accepta-ble.

Only German language version available.

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