Telecommunications Industry, Price Control And Its Empirical Applications,

As is well known, the pricing of telecom products has been the focus of attention for many years and it remains a thorny problem to the government. The paper takes a closer look at the regulated pricing of telecommunication products in China. First, it describes the reforms in China's telecommunication industry, presents three typical arguments on the split of China Telecom and points out that the dispute is actually about whether to keep monopolistic structure in telecom industry or to introduce competition into it. Then, it reviews the pricing mechanism of telecom industry in monopoly market before 1994 and the one in competition market afterwards. The entry of China Unicom into the market brings competition, but it also leads to the end of cross subsidy, which has been feeding the local call service for so long a time. As a result, while monopoly companies asks the government for support, customers demand lower prices of local call services. The government is deep into such a dilemma as pricing the telecom products. Second, the paper introduces the main regulated price level models, analyzes their principles, and considering the characteristics of telecom industry, it concludes that pricing based on average cost is preferred. As telecom industry is characterized by natural monopoly, the incumbent company tends to charge high prices, so it is necessary for the government to continue regulating the pricing of its basic telecommunication services by balancing the benefits of monopoly companies and social welfare.Third, by defining natural monopoly as scope of economy and subadditivity, the paper provides a theoretic support for the above conclusion. Then, it introduces the following two regulated price level models of telecom products:Rate of Investment Return Model and Price Cap Model and the comparative analysis between them shows us that Price Cap Model is more suitable for China's telecom industry than Rate of Investment Return Model.Last but not the least, based on the problem analysis of the current regulated pricing mechanism in China's telecom industry, the writer tries doing regulated price modeling for China's basic telecommunication services and gives several pieces of advice for the government on the regulated pricing of telecom industry.