CLEC access charges and the problem of monopoly power

Abstract

The analysis in this paper looks at the problem of excessive originating and terminating access charges imposed by some competitive local exchange carriers (CLECs) in the US. The problem arises because the current institutional structure provides an incentive for CLECs to charge for access service in excess of what a competitive market would indicate. An examination the data shows that the problem of excessive access charges imposed by CLECs is very real. An analysis of terminating access charges for September 2000 reveals that average terminating access charges billed to three interexchange carriers (IXCs) are excessive, exceeding average price cap-regulated incumbent local exchange carrier (ILEC) access charges by 370–470%. A couple of solutions to the problem are offered, including a first-best solution whereby the calling party would be required to pay the for originating access service and have the receiving party pay for terminating access service. A second-best solution would be to limit CLEC’s access charges to an IXC to be less than or equal to the access charges of the ILEC with which it directly competes for customers.