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Price cap regulation in telecommunications: from theory to practice



Publishing details

Regulation Initiative Working Paper Series

Publication Year



Theoretical and empirical analyses have shown that the application of price-caps in telecommunications promotes desirable incentives. However, there is a suprising lack of formal analysis addressing the pracitical evaluation and design of price-caps. In this paper I seek to redress this imbalance by looking at the retail price-caps applied on British Telecom (BT) since 1984. The current price-cap, which had been designed especially to target the interest of low to medium spending customers, is looked at closely. It is shown that because there is a positive correlation between customers' expenditure and the distance of calls made by cstomers, a revenue-weighted price-cap is sufficiently flexible to target the interests of low to medium spending customers.

Publication Research Centre

Regulation Initiative (closed)

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Regulation Initiative Working Paper Series

Available on ECCH


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