Costa Rica: A Case Study of the Telephone Cost Structure on a Service-Related Basis

Abstract

This paper is based on a study made by the author in 1972-1973. The cost information corresponds to 1970. Although wealth and population density vary somewhat between Latin American countries, the region can be considered, as a group, better off than the other underdeveloped regions of the world. The network studied is probably among the best in the region. The paper is addressed to the issue of service-related cost allocation in the actual telephone network of Costa Pica. Although it is theoretically impossible to determine univocally average costs for the different services (due to joint costs), computations are made on the basis of hopefully reasonable assumptions. Marginal costs can be computed univocally, and are computed for long distance links on a dynamic framework, and for urban networks on a comparative-statics framework. Pricing policies are a natural outcome of this study. However, the only price structure that can be computed using only the information included is efficient pricing. Efficient pricing under financial or other constraints requires an understanding of consumer behavior. Among the findings worth mentioning is the interdependence of the cost structure and technological changes. Examples of this are the lesser importance of holding time in common control exchanges vis-a-vis step-by-step, the lesser importance of distance in long-distance traffic in mircowave links vis-a-vis physical pairs. The notable disparity between cost and rates in modern longdistance links, resulting in cross-subsidization from long-distance to urban networks, is a very important issue in most telephone networks.