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LLU arises when the incumbent leases the local loop at wholesale prices to a rival to enable the rival to provide a range of telecommunications services. From the previous principles we know that one key factor is whether the downstream firm will use the unbundled local loop to provide a service which is a substitute for, a complement to, or independent of the incumbent firm’s existing services. In the case where the new service of the entrant does not compete with the service of the incumbent,22 the principles set out here show us that the existing retail tariffs of the incumbent for its services are irrelevant.

THE THEORY OF ACCESS PRICING Principle 4: (Price discrimination) Assume it is necessary to raise greater revenue from utility services than can be collected by pricing these services at marginal costs. , if it is possible to charge different prices to different customers, or for services purchased at different times of the day, or at different geographic locations, or if it is possible to charge a price which depends on the number of units purchased – then it is usually efficient to do so. In other words, it is generally efficient to use two-part or multi-part pricing, or to use second and third-degree price discrimination.

And theory suggests it makes even more sense to allow the monopolist to vary both its final prices and access prices subject to a single “global price cap”. C Source: OECD. knowledge of demand or cost conditions on the part of the monopolist will be incorporated into prices. A potential, drawback is that entrant’s incentives to innovate can be reduced if the monopolist uses its access pricing flexibility to expropriate entrant’s innovations. Principle 7 (again): A regulator can usually improve efficiency by allowing the regulated firm to vary its access prices subject to a cap on a weighted-average of a basket of prices.

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