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DRAFT – PRELIMINARY RESULTS
This work is distributed as a Discussion Paper by the
STANFORD INSTITUTE FOR ECONOMIC POLICY RESEARCH
SIEPR Discussion Paper No. 01-30
Local Telephone Rate Structures:
Before and After the Act
By
Gregory L. Rosston
Stanford University
And
Bradley S. Wimmer
University of Nevada, Las Vegas
August 2002
Stanford Institute for Economic Policy Research
Stanford University
Stanford, CA 94305
(650) 725-1874
The Stanford Institute for Economic Policy Research at Stanford University supports research bearing on
economic and public policy issues. The SIEPR Discussion Paper Series reports on research and policy
analysis conducted by researchers affiliated with the Institute. Working papers in this series reflect the views
of the authors and not necessarily those of the Stanford Institute for Economic Policy Research or Stanford
University.
Local Telephone Rate Structures: Before and After the Act
Bradley S. Wimmer*
University of Nevada, Las Vegas
Gregory L. Rosston
Stanford Institute for Economic Policy Research
DRAFT – PRELIMINARY RESULTS
DO NOT QUOTE OR CITE WITHOUT PERMISSION
August 2002
Abstract: Large urban-to-rural and business-to-residential cross-subsidies are embedded
in local rates; in fact, on average, state rates in high-cost areas are lower than rates in the
state’s low-cost areas. This disparity in rates grows as the relative cost of serving rural
customers within a state increases. We also find that prices in urban areas are driven more
by the dispersion of costs throughout a state than they are by costs in urban areas.
Residential rates are equal to less than one-half the rate paid by business users, holding
costs constant. Finally, we present evidence that suggests that states have begun to
rebalance business and residential rates through a combination of higher residential and
lower business rates. We find that this rebalancing process is incomplete and th
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