Optimal Local Exchange Carrier Size

Abstract

Optimal firm size and patterns of returns to scale among the local exchange companies in the U.S. telecommunications industry are estimated for the years: 1975, 1978, 1981, 1984, 1987 and 1990. The independent companies display increasing returns to scale, while the Baby Bells display constant or decreasing returns to scale. The independent companies operate at a scale smaller than optimal size, while the Baby Bells operate at a scale greater than optimal size. Efficiencies can be gained by industry restructuring, by allowing independents to expand their size while the Baby Bells can be downsized to create smaller units.