Study On Price-cap Regulation And Its Application In China's Telecommunication Industry

Price-cap regulation is one scheme of incentive regulation which is applied to the largest extent, and whose effect is the most evident in western countries presently. In the view of successful foreign experience, starting from Oct.1, domestic and international long distance calls , calls from the mainland to Taiwan, Hong Kong and Macao, charges on domestic roaming , and fixed-line phone calls within the same network were kept below a certain level, said a document jointly released by the Ministry of Information Industry(MII) and the State Development and Reform Commission .This reform meant our country started incentive regulation in telecommunication industry ,and there was a new field of regulation research.Price-cap regulation is a kind of incentive regulation of high-powered scheme, and it has the advantage and disadvantage. Price-cap regulation can overcome the shortcomings of rate-of-return regulation, and realize Ramsey pricing system. Meanwhile , because of meeting the need of modern telecommunication ,it is most widely applied in telecommunication regulation. The design of Price-cap regulation is composed of two parts: calculation of the main variables and some of necessary measures to avoid its shortcomings. Incentive regulations in Britain and the US telecommunication are models applying price caps in practice. Learning their experience can guide to regulatory reform in China's telecommunication industry.China telecommunication reform of price regulation have laid the foundation for price-cap regulation, and these also let tariff regulations of China's telecommunication industry become unique. Pareto standard is used to evaluate the performance of price-cap regulation in our country. From the analysis , we see that, first, overall productivity of telecommunications operators maintained steady growth, but price-cap regulation had different impact on mobile operators and fix-line operators. Mobile operators made use of its advantages to gradually occupy the market share of fix-line operators. Second, price-cap regulation also influenced prices of regulated service unbalanced, but the overall price level is lower. Third, cost of regulation can be partly saved. In short, the performance of price-cap regulation in China is not significant. Main reasons for this are unique background of China telecommunication industry and price-cap model is not standardized .Therefore, in order to promote price-cap regulation of China's telecommunication industry, we must design a model which is fit for China situation and implement some necessary measures related to price-cap regulation.