Optimal Telecommunications Services Pricing

Cognizant with the importance of optimal pnCll1g as a guide to efficientrnresource allocation, this study was conducted to determine optimal prices for telephonyrnservices for selected urban areas in Ethiopia. To this end, a forward looking engineeringrneconomic technique of determination of incremental supply cost and the peak loadrnpricing method were used to establish optimal telecommunications service prices thatrnmeet the broader national objective of efficiency in resource allocation and financialrnviability of the telecommunications operator.rnThe finding that emerged in the effort is that the telephone network utilizationrn( traffic services) charges currently levied by the incumbent operator are well above thernincremental cost, as derived in this study, of providing those services. Since networkrnutilization services have greater sensitivity to prices, the distortions to efficiency andrnwelfare loss are significant.rnThese results have implications for pricing in telecommunications and otherrnpublic utilities. That is policy makers need to adapt an optimal pricing strategy basedrnon a forward looking engineering economic study of determining incremental costs. Inrnparallel, policy makers need to review the sector organization and policy so that thernwider objectives of efficiency in resource allocation and the financial viability andrnpromotion of the telecommunications sector are achieved.

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