NERA Topics #8: Economic Effects of Telephony Price Changes in the UK

Tue Sep 01 16:24:38 EDT 1992
By Nigel Attenborough

Since 1983, there has been an overall fall in real telephony charges in the UK, and a marked rebalancing of the relative prices of different services. Fixed line rentals have risen in real terms since 1984, while call charges, and particularly long distance call charges on high volume routes, have fallen considerably. An important trigger for these changes has been the regulatory regime governing the privatized BT (allowing flexibility of tariffs with an RPI-X price cap) and the emergence of competition, particularly from Mercury Communications in long distance telephony markets.

What has been the effect of these price structure changes? Have they improved economic welfare? If so, how have the gains been distributed? This working paper addresses these questions. Although we focus on developments in the UK, our conclusions are also relevant to other countries seeking to liberalize their telecommunications markets.