Access Charge: That portion of the monthly bill for exchange service which is independent of usage. This component reflects the rate to access the network and receive calls.
Allowance, Usage: The "free" usage granted to a customer before charging for the usage. This may be integrated with the access charge or separately stated.
B1 rates: One party exchange service (see below) for business customers.
Basic Calling Area: The area in which telephone usage is provided without a distance charge.
Basic Service: See Exchange Service
Bypass: When a (potential) customer uses alternative means of connection to the network rather than use the traditional carrier as its provider.
Call: (For billing purposes) a successful, completed connection by a customer. (This is not the standard telephony definition of the term "call".)
Call Classification: The systematic arrangement of calls into distinct groups based on identifiably unique demand and/or cost characteristics (e.g., credit card calls, directory assistance calls, calls employing Custom Calling Features).
Call Duration: The time interval between the off-hook condition of the called number and the subsequent disconnection by either the calling or called number.
Call Set-Up: The process of successfully establishing the communicating path between the calling and called party.
Central Office (CO): A communication switching center which employs one or more NXX codes for the switching of local traffic. Allows connections to other subscribers, tandem offices, the inter-exchange carriers (IXCs), cellular networks, etc.
Circuit: (Twisted pair) to Central Office: Fixed and invariant with usage. This relationship is changing with distributed process networks.
Customer Provided Equipment (CPE): Telecommunications equipment at the customer's premises, which is competitively provided by any firm which meets the Federal Communications Commission certification requirements.
Consumer Surplus: The benefit derived by a consumer from the consumption of a good or service beyond what the customer paid for it.
Cost-based Pricing: Prices that are specifically related to cost associated with the production of a good or service.
Derived Demand describes business demand for productive inputs i.e., firms do not demand a good or service for its own sake, but for what it can contribute to producing a given output at least cost.
Distance: The airline mileage between the originating location of a call and the terminating location of that call. (Location, as used above, is envisioned to be the wire center's V and H coordinates.)
Economic Profit : Profit over and above a normal return on investment. Accounting profit is greater than economic profit. Accounting costs would, generally, be below the economic costs.
Economies of Scale: Exists if proportional increases in inputs more than proportionally increase output. Mathematically, if and only if
where xi 's are inputs and Q is the output.
Economies of scale can arise from a number of sources. Larger capital items (e.g. machines) may be able to produce several units at a lower unit cost than the machine that would be required for low levels of production. A simple if perhaps obvious example would be the production of a single automobile versus the production of hundreds of thousands. In the latter case, it would pay to develop dyes, presses, etc. to fabricate parts, but for one or two cars per year this would not even be considered.
Economies of Scope: When a firm is able to produce two or more different products jointly at a lower unit cost than producing each separately.
Efficiency: The least-cost combination of inputs required to produce a given level of output or, alternatively, for a given combination of inputs, the combination of outputs which yields the maximum economic value from society's point of view.
Elastic Demand: Whether derived or consumer demand, is demand that is responsive to price changes. Specifically a given percentage increase or decrease in price is accompanied by a larger percentage decrease or increase, respectively, in quantity demanded. Its absolute value is greater than one. (See Elasticity, below)
Elasticity: The sensitivity of quantity demanded to a change in the variable of interest. Thus price elasticity of demand is:
where Pi is the price of the. good or service and Qi is the quantity.
Income elasticity, more precisely, the income elasticity of demand, is the responsiveness of demand to changes in income, that is, purchasing power.
All other elasticities are similarly defined.
Equal access allows all carriers the ability to offer + 1 dialing. Dialing 10xxx allows individuals to reach any IXC.
Exchange: A geographical area within which there is a single uniform set of charges for telephone service. The exchange presently serves as the basis of calibrating the distance factor in the toll tariffs.
Exchange Service: can be divided into two major services:
Subscriber Access: The connection to the network
Local or Exchange Usage
(Note, Local Exchange Service is redundant)
Externalities : There are two externalities associated with telephone service: call and access. The call externality arises from the impact, positive or negative, upon the called party, which is in addition to the benefit received by the caller, who, by definition, must regard the benefit to be at least as great as the cost. Obviously, not all calls received are regarded as beneficial by those called, and one manifestation of this is unlisted numbers. But, on balance, the call externality is very likely positive.
The access externality arises each time an additional subscriber joins the network because there is now one more party that the previously existing community can reach. This is thought to be a benefit that continues to accrue as the network increases without limit, and it is the rationale for charging subscribers to larger exchanges more for access than subscribers to smaller exchanges. This externality is more critical in developing countries where the systems have very low penetration. There are large numbers of subscribers whose access, insofar as it enables one to reach, and be reached by them, is irrelevant, except to the extent that the costs to all are reduced due to economies of scale.
Flat-rate Pricing: Pricing a service at a uniform price irrespective of the volume consumed. This is a common pricing practice for exchange service in the United States.
Incentive Regulation: As opposed to Rate of Return Regulation, and is usually in the form of price caps, see below.
Inefficient Entry: The establishment of a firm(s) whose cost function lies everywhere above that of already existing firms in an industry.
Inelastic Demand: Whether derived or consumer demand, is demand that is not very responsive to price changes. Specifically a given percentage increase or decrease in price is accompanied by a smaller percentage decrease or increase, respectively, in quantity demanded. Its absolute value is less than one. (See Elasticity, above)
International Settlements: The payment from one country's telecommunications entity to another for the carriage of its traffic to the terminating point in the recipient's country. Settlement rates have not been based on the costs of the transmission.
LEC: Local Exchange Carrier (see note above). Include the RBOCs, GTE, Sprint (United) and some 1,300 exchange carriers.
LATA: Local Access Transport Area, geographical areas defined by the Modified Final Judgment (MFJ) when the divestiture of the Bell System was implemented in 1984.
Local Calling Area: The geographical area wherein calls are charged according to local exchange tariffs (presently, the majority of local exchange tariffs utilize a flat rate price structure).
Local Loop: A circuit connecting a customer premise to a central office.
Local Measured Service: The provision of local (non-toll) telephone service in which charges are made for local usage in addition to a monthly access charge.
Long Run: That period of time in which all factors of production are variable and optimum changes can be effected.
Margin (or Incremental) Cost: The cost associated with the additional (incremental) cost of providing an additional unit of output. The change in total cost associated with an additional unit of output.
Modified Final Judgment (MFJ): The agreement between AT&T and the Justice Department which settled the AT&T anti-trust case and resulted in the divestiture of AT&T (the Bell System) from its exchange carriers. The MFJ also included rules and regulations for the newly created Regional Bell Operating Companies. In particular, it had several line-of business restrictions with which they had to comply. The MFJ was administered by Judge Harold Greene.
Monopoly: A single supplier of a good or service. A "natural" monopoly exhibits economies of scale and scope which, if its prices are based on costs, will generally prevent entry of competition.
Natural Monopoly : The concept of natural monopoly is that of an industry in which there is room for only one supplier, due to some aspect of the production process or the market. Traditionally, a declining long run marginal cost curve, i.e., economies of scale, was considered the defining characteristic of a natural monopoly. More recent research indicates that what is known as strict cost sub-additivity is the appropriate cost test. Strict cost sub-additivity means one firm can produce more cheaply than two or more firms. Necessary and/or sufficient conditions exist on the cost function for it to be sub-additive. See Economies of Scale and Scope.
Opportunity Cost : The cost associated with the next best alternative use of an input.
Pareto Improvement: A move toward Pareto Optimality. An improvement in the benefits for some without the loss of benefits by others.
Pareto Optimality : Even if the price is set at marginal cost, this may not be a move toward Pareto optimality, since the necessary conditions outside the industry have not been met. This has been termed in the literature the problem of "second best".
Peak Period: The time interval when a central office switching system carries the most traffic.
POP: Point of Presence, the interface between the exchange carrier and IXC.
Predatory Pricing: Pricing below cost with the express purpose of preventing a potential competitor from entering the market or driving a competitor out of the market.
Premium Flat Rate Option: A tariff offering designed for high usage customers in which local usage is billed at a high fixed monthly price which approximates the total cost.
Price Caps: A means of regulating the prices charged by carriers which requires that a bundle of service offerings have a weighted average change no greater than a set percentage over a given period of time. This percentage is usually based on a (consumer) price index less an allowance for productivity changes. It is the method of regulating British Telecom, AT&T and certain exchange carriers e.g. in California.
Price Elasticity of Demand: The percentage change in quantity demanded divided by a percentage change in the price of the service. See Elasticity, above.
Productivity: The creation of economic value. The ratio of physical output to physical input; often approximated by the ratio of the value of output to the value of input.
R1 rates: One party exchange service rates (see above) for residential customers.
Rate Averaging: Setting uniform rates based on an average, such as uniform rates per kilometer without regard for costs.
Rate Base Regulations: Regulation based on the size of the (depreciated) capital stock i.e. the amount of investment in telephone plant and equipment.
Rate Re-balancing: Changing rates toward a cost basis. The practice usually occurs in response to threats of competition.
Regulation: A method of control of a firm, company or industry through a series of rules and regulations. Regulations are usually formulated and implemented by a government or public body.
Resale: The ability of a carrier to purchase circuits or usage from another carrier and sell them to end users.
Restructuring: Used in reference to the privatization or structural changes in the operation, ownership and control of the telephone administration or other government entity. Usually used in the context of privatization.
Revenue Stability: A relatively low variance in the revenue flows over time.
Separations: The division of telephone plant accounts and costs into exchange, inter- and intra-state toll.
Settlements / Division of Revenues: The dividing of the toll revenues among the exchange carriers via Subscriber Line Usage charges.
Subscriber Access : The connection by an individual user to the (switched) central office of the telephone company. It is, in general, a fixed cost; but in most countries part of the cost is covered by usage charges.
Subscriber Access Charges: The charges which are imposed on the business and residential subscribers to cover, partially, the cost of subscriber access. The charge comes from the Separation charges assigned to the federal jurisdiction. Currently it is approximately $ 3.50 per month for residential customers and $7.50 for business subscribers.
Tandem Office: Connect the CO in the same fashion as the subscribers are consolidated with COs, i.e., it connects COs to one another.
Tariff: The formalization of the prices and other rules associated with the provision of an utility service offering.
Time-of-Occurrence: The time-of-day or day-of-week at which a call occurs.
Toll Service: defined as non-exchange service. It can be sub-divided into:
International calls
Inter-LATA inter-state calls
Inter-LATA intra-state calls
Intra-LATA inter-state calls
Intra-LATA intra-state calls
The Regional Bell Operating Companies (RBOCs) could only offer service in the latter two due to the Modified Final Judgment (MFJ). If they met certain competitive conditions, they can enter any of the toll markets since the passage of the Telecommunications Act of 1996.
Alternative carriers can provide service in the first three markets and, in some cases, the latter two services.
Traffic Sensitive Costs: The costs associated with the quantity of utilization of a service. A sub-set of what the economist refers to as variable costs.
Universal Measured Service: The provision of network telephone service (including toll) in which charges are made to all customers for usage in addition to a monthly access charge.
Universal Service: Refers to market penetration of the telephone service to as many members of the society as possible.
Usage-sensitive Pricing: Pricing of service based on the volume of service used by the customer, as opposed to flat-rate pricing (See above).
Wire Center: That central office location which serves as the focus of local loops for a defined geographical area.
Copyright © 1996 James Alleman. All Rights Reserved
glossary.htm