The telecommunications industry continues to develop new technologies and services and is increasingly characterized by a convergence of historically separate local, long-distance, wireless, and cable media.  The development of broadband, high-speed Internet access, the unbundling of local networks, and new conceptions of universal service are but a few facets of the rapidly evolving industry. Telecommunications firms have encountered regulatory constraints necessitating a reorientation of competitive strategies.  The role of ERS Group has been to provide advice on the development of less restrictive regulation and market-oriented solutions to recognized problems.    

Auction design and bidder support Stranded costs Analysis of alternative regulatory proposals Merger analysis Incentive regulation (e.g., price cap regulation)		Access and interconnection pricing Pricing and rate design Retail unbundling Cost and productivity measurement Universal service support

Telecommunications Act Arbitration Proceedings Until 1996, local telephone markets had been treated as natural monopolies and thus subject to regulation. The Telecommunications Act of 1996 sought to introduce competition into these markets. Among other things, the Act required incumbent local exchange carriers to provide access to their network elements on an unbundled basis. These elements, involving such things as loops and switches, are the building blocks of a local telephone network. ERS Group economists have presented testimony before various state commissions regarding the pricing of unbundled network elements. Our work in this area has been published in numerous academic journals, including the Yale Journal on Regulation.

ERS Group Addresses Cost Recovery Issue in Local Telephony On behalf of a local exchange carrier, ERS Group Director Michael Doane prepared testimony regarding the regulated firm’s opportunity for cost recovery given the retail rate structure and unbundled network element prices established by the state regulatory commission. The testimony presented approaches for cost recovery that encourage efficient entry in local exchange markets.

ERS Group Examines Market Power Issues in Local Telephony ERS Group Director Michael Doane submitted testimony in a state regulatory proceeding regarding economic approaches for measuring market power in local phone markets. Among the issues considered in the study was whether certain telecommunications markets were sufficiently competitive to allow market-based prices. The study also examined issues related to product and geographic market definition and entry conditions.

ERS Group Evaluates Proposed Merger of MCIWorldCom and Sprint The proposed $129 billion merger of MCIWorldCom and Sprint would have combined the second- and third-largest facilities-based carriers of interLATA long-distance services in the United States. On behalf of a Regional Bell Operating Company, ERS Group addressed whether the merger would be in the public interest and concluded that the effect of the proposed merger would be to lessen substantially the level of competitiveness in long-distance markets.

ERS Group Addresses Cable Access Pricing Issues in Australia ERS Group economists were retained by a producer of content for pay television to assess proposals before the Australian Competition and Consumer Commission regarding the pricing of access to certain cable services. Our experts examined the appropriate method for determining the price access seekers should pay for the provision of analog pay television carriage services provided via broadband cable and the conditional access decoding services provided via set-top units.

ERS Group Examines Benefits and Costs of Vacating the Consent Decree in U.S. v. AT&T On behalf of all Regional Bell Operating Companies, ERS Group experts quantified the consumer welfare gains likely to result from entry into long-distance markets by local phone companies.

ERS Group Examines Reciprocal Compensation Mechanism ERS Group examined a reciprocal compensation” mechanism under which a local exchange carrier terminating a local voice call originating on the network of another local exchange carrier is paid for the cost of terminating that call. Our testimony demonstrated that the substantial growth of Internet-related calls, with substantially longer average holding times than average voice-grade calls, has caused the current compensation mechanism to over-compensate competitive local exchange carriers (CLECs) for the cost of terminating calls placed by the incumbent carrier’s customers. ERS Group's professional staff demonstrated that this mechanism has induced firms to make economically inefficient investments in an attempt to capture subsidies created by that compensation mechanism. These subsidies blunt CLECs' incentives to compete for residential customers and to deploy advanced service technologies. The testimony also discussed how an efficient mechanism for determining inter-carrier compensation could be established.

	Paul W. MacAvoy and Michael A. Williams (2002). Deregulation of Entry in Long-Distance Telecommunications  Michigan State University Press.

	Simon J. Wilkie and Charles R. Plott (forthcoming). Universal Service Regulation and Entry in Local Telecom Markets.  Journal of Public Economic Theory

	Dennis L. Weisman and Michael A. Williams (2001). The Costs and Benefits of Long-Distance Entry: Regulation and Non-Price Discrimination.  Review of Industrial Organization

	Michael J. Doane, David S. Sibley, and Michael A. Williams (1999). Having Your Cake - How to Preserve Universal-Service Cross Subsidies While Facilitating Competitive Entry.  Yale Journal on Regulation

	Michael J. Doane and Paul W. MacAvoy (1997). Transmission Access Pricing and ‘Non-bypassable’ Competitive Transition Charges.  Natural Resources Journal

	R. Preston McAfee, John McMillan, Lawrence M. Ausubel, and Peter Cramton (1997). Synergies in Wireless Telephony: Evidence from the Broadband PCS Auctions.  Journal of Economics and Management Strategy

	Michael J. Doane and Michael A. Williams (1995). Competitive Entry into Regulated Monopoly Services and the Resulting Problem of Stranded Costs.  The Hume Papers on Public Policy

	Simon J. Wilkie and Bhaskar Chakravorti (1995). Auctioning the Airwaves: The Contest for Radio Spectrum.  Journal of Economics and Management Strategy

	John McMillan (1994). Selling Spectrum Rights.  Journal of Economic Perspectives