With a little help from my friends? Cross-subsidy and installed-base quality in the US telecommunications industry

This article examines the effect of the cross-subsidization process, which is a key institutional mechanism in the telecommunications sector generally , on enhancing the quality of the installed-base of telecommunications infr astructure in the United States. Fiber optic and digital technology usage l evels within local exchange carriers in the United States are used to captu re installed-base quality. The results shaw that local exchange sector cros s-subsidization has a positive effect on new technology deployed in the ins talled-base. Regulatory influences are also controlled for and the introduc tion of pure price-cap schemes is shown to positively affect new technology quality. Where price-cap schemes are introduced in conjunction with a mixe d earnings sharing scheme, or where only an earnings sharing scheme is intr oduced, then the effect on new technology usage is much more mixed. (C) 200 0 Elsevier Science B.V. All rights reserved.