Estimates of Demand Elasticities for International Telecommunications Services

Abstract

THE provision of international telecommunications services-mainly telephone, telegram, and telex-is in the domain of a highly concentrated, regulated industry. The Communications Satellite Corporation, American Telephone and Telegraph, and a half-dozen record carrier companies are the sole facility and/or service providers on the U.S. end of the internationally connected voice and data circuits.1 International operations of these companies are regulated by the Federal Communications Commission as to authorized rates that may be charged and facilities that may be constructed. A reasonably complete and accurate analysis of the demand for international communications services is important for both the operating companies and their regulators. Operating companies need accurate demand forecasts in order to meet their quality-of-service and profit goals over time. Regulators require these estimates to make facility construction authorization decisions that properly balance the need for adequate service capabilities and the public benefits of avoiding excessive investment that arise when private construction incentives deviate from socially optimal levels. The latter problem is highlighted by the continual problem of balancing satellite and cable investment proposals.2 Knowledge of the structure of demand, especially price elasticities, is necessary for properly determining rates that yield the operating companies a 'fair return on a fair base' after recovery of expenses and depreciation. Published studies concerning the demand for international telecommunications are few in number. Telephone, telegraph, and telex have been studied by P. G. Yatrakis [i9] for a sample of 46 countries for I967 and by A. M. Lago [7] in an intertemporal cross-sectional analysis of 23 countries for the period I962-64. Demand for telephone services between the continental United States and Hawaii has been analyzed by C. H. Luke and P. G. Yatrakis [8] for the years I96I-69. The results of these studies indicate that