Abstract
Incentive regulation in the form of price caps was adopted for interstate access servicein 1991 as a way to provide local exchange carriers with an incentive to improve theirproductive efficiency. An issue that has arisen with the adoption of price cap regulationis whether deterioration in service quality for interstate access service has been an unintended consequence. The analysis in this paper uses several different measures ofservice quality, including the average installation interval, the percent of commitmentsmet, total trouble reports, and the average repair interval for both switched access service and special access service, to investigate empirically whether there has been a decline in service quality between 1991 and 2000. The results are conclusive. Overall service quality has fallen. To rectify the situation, a proposal is offered to adjust the price cap index to penalize LECs who fail to provide an acceptable level of aggregate service quality.
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