CROSS-SUBSIDIZATION IN TELECOMMUNICATIONS

The Telecommunications Act and FCC and state commission orders have ma de the proper consideration of cross-subsidization increasingly import ant, This article briefly surveys the economics literature on cross-su bsidization. Caveats regarding the application of the theory to teleco mmunications, including cross-elastic effects, zero economic profit as sumptions, and mistaken identification of loop costs as common product ion costs, are discussed. The patterns of cross-subsidy and claims of their existence in the industry are considered. The FCC's recent order s are discussed in the context of the relevant economics literature.