Fine Tuning Regulated Telephone Prices

Abstract

State public service commissions (PSCs) regulate many rates for local telephone companies. The rates are calculated to return a predetermined revenue stream. However, rounding errors in the computational procedure often produce rates that either generate too much revenue or do not generate the full authorized revenue. Most PSCs allowed Contel Telephone Company to adjust certain rates by a nickel to address this problem. A trial-and-error approach to nickel adjusting, while helping the situation, was often time-consuming and still left the full revenue potential unrealized. I developed a one-constraint binary integer program that eliminated this annoying predicament.