Optimal Telecommunications Services Pricing
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Date
1998-06
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A.A.U
Abstract
Cognizant with the importance of optimal pnCll1g as a guide to efficient
resource allocation, this study was conducted to determine optimal prices for telephony
services for selected urban areas in Ethiopia. To this end, a forward looking engineering
economic technique of determination of incremental supply cost and the peak load
pricing method were used to establish optimal telecommunications service prices that
meet the broader national objective of efficiency in resource allocation and financial
viability of the telecommunications operator.
The finding that emerged in the effort is that the telephone network utilization
( traffic services) charges currently levied by the incumbent operator are well above the
incremental cost, as derived in this study, of providing those services. Since network
utilization services have greater sensitivity to prices, the distortions to efficiency and
welfare loss are significant.
These results have implications for pricing in telecommunications and other
public utilities. That is policy makers need to adapt an optimal pricing strategy based
on a forward looking engineering economic study of determining incremental costs. In
parallel, policy makers need to review the sector organization and policy so that the
wider objectives of efficiency in resource allocation and the financial viability and
promotion of the telecommunications sector are achieved.
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Telecommunications Services Pricing