OPTIMAL PRICING OF THE PORTUGUESE TELEPHONE SERVICE

A first attempt is made at finding the optimal two-part tariff for Portuguese telephone service. A theoretical model of consumer demand is presented and the two-part tariff which maximizes social welfare is derived. The model is then calibrated using Portuguese data and previous econometric studies. The optimal long-run two-part tariff consists of an access charge that is close to twice the marginal cost of access and a usage charge 25% above the marginal cost of use. The level of the optimal two-part tariff depends mainly on the marginal cost of taxation and on an index of aversion to inequality. The structure of the optimal two-part tariff depends mainly on the ratio between the marginal consumer's usage level and the average usage level. Although the cost estimates are very tentative, the results suggest that the 1986 usage charge was greater than optimum. No similar conclusion can be drawn with respect to the access charge. © 1990, Taylor & Francis Group, LLC. All rights reserved.