How to Treat the Costs of Shared Voice and Video Networks in a Post‐​Regulatory Age

November 27, 1996 • Policy Analysis No. 264
By Alfred Kahn

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Introduction 2
Prerequisites of Efficient Innovation under the 1996 Telecommunications Act 5
Application of the Incremental Cost Rule and the Prices of Regulated Services 7
The Relationship of Incremental to Stand‐​Alone Costs 8
Distributing the Benefit of Economies of Scope 11
The Fairness and Efficiency of Competition Under the Proposed Assignment of Investment Costs 13
The Conflict between Recourse to Cost “Allocations” and the Telecommunications Act 16
The Commission’s Only Correct Course Is to Abandon Its Cost Allocation Proceeding 19
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About the Author
Alfred E. Kahn is the Robert Julius Thorne Professor of Political Economy, Emeritus, Cornell University and Special Consultant with National Economic Research Associates, Inc. (NERA).