Price-cap regulation and service-quality in telecommunications:: an empirical study

The paper investigates the service-quality performance of distinct regulatory regimes in US local telephony for the period 1996-1998. It concentrates, in particular, in the assessment of quality performance under price-cap regulation (PCR) taking as reference a variety of quality indicators available from the Federal Communications Commission. The paper identifies quality efficiency frontiers for the firms under the different regulatory regimes by using Data Envelopment Analysis subsidized by a prior application of Principal Components Analysis. The efficiency scores thus obtained serve as basis for a nonparametric statistical test on the frontier uniqueness across regimes. The evidence provides some support to conjectures of inferior quality performance under PCR. (C) 2003 Elsevier B.V. All rights reserved.