Monday, October 24, 2011
Posted by D. Daniel Sokol
Zoltan Biro, George Houpis and Matt Hunt, all at Frontier Economics discuss Applying Margin Squeeze in Telecommunications: Some Economic Insights.
ABSTRACT: We examine in this note the principles of the application of margin squeeze tests in telecommunications, focusing on three key elements in the application of an imputation test, where economic principles can provide guidance on the appropriate approach: the scope of a margin squeeze test, the form of the margin squeeze test and the appropriate cost concept. The case studies presented, reflecting the approach of different authorities to these three key elements of margin squeeze tests, suggest that there is still some divergence in terms of the reliance on economic principles to guide the approach to the imputation test. The significant growth of broadband markets over the last few years, combined with the emergence of a number of rivals to the incumbent operators, should provide an evidence basis for using economic principles to guide both the scope and the form of the imputation test in the future.