Service quality and the impact of incentive regulation in telecommunications in the USA

Incentive regulation in the form of price caps was adopted for interstate access service in 1991 to improve productive efficiency of local exchange carrier. Whether deterioration in service quality for interstate access service has been an unintended consequence of this regulation was studied. This paper analyses several different measures of service quality, including the average installation interval, the extent of commitments met, total trouble reports, and the average repair interval for both switched access service and special access service, to investigate empirically whether there has been a decline in service quality between 1991 and 2000. The results are conclusive. Overall service quality has fallen. To rectify the situation, a proposal is made to adjust the price cap index to penalise LECs who fail to provide an acceptable level of aggregate service quality.