Interconnection in international telecommunications - An empirical investigation of United States settlement rates

Several national governments have expressed concern at the inability of car riers to negotiate lower accounting rates, Ergas and Patterson (1991) and F rieden (1997) argue that it is only on bilateral markets with facilities-ba sed competition at both ends that conditions favour accounting rates reduct ions. In the absence of facilities-based competition, Frieden also suggests that service providers, such as resellers, may provide a second best oppor tunity to place downward pressure on accounting rates, This study extends t he work of Ergas and Patterson by developing an econometric model of settle ment rate pricing. The model is estimated on data for 27 US bilateral telep hone markets for the period 1985 to 1995, Parameter estimates are used to i dentify settlement rate determinants, and so highlight impediments to effic ient international telecommunications pricing. A novel feature of the model is the inclusion of a resale market structure variable. (C) 1998 Published by Elsevier Science Ltd. All rights reserved.