Public policy for a multiproduct firm: Tearing down the ‘Berlin Wall’ in telecommunications

Abstract

United States telecommunications policy contains ‘Berlin Walls’ that due to technology advances are being breached. Policies that encourage competitors are unnecessarily constraining traditional providers, the local exchange carriers. These constraints are causing market distortions, harmful to consumers. We propose four specific policy changes that should be adopted in order to bring down the walls while providing protections against any residual market power held by the exchange carriers. Specifically: use of incremental cost test to deter/detect cross-subsidies, price imputation for intrafirm transfers, generalized open network architecture, and removal of prohibitions on exchange carrier provision of video programming.