Quantity-Discount Contracts as a Barrier to Entry

This POLICY PAPER presents an economic model showing how incumbent local exchange carriers may deter efficient facilities-based entry for high capacity loop facilities through the use of quantity-discount contracts for Special Access services. Since efficient entry is deterred, these contracts are socially inefficient. The theoretical model also shows that the entry-deterring effects of the contracts are eliminated if high-capacity circuits are made available at prices based on economic costs (e.g., TELRIC) and made available without use restrictions historically applied to such access. To foster efficient facilities-based entry, federal policies must address the entry-deterring components of Special Access contracts and make high-capacity facilities available on an unbundled basis at cost-based prices