The forecasting implications of telecommunications cost models
The Federal Communications Commission and state regulators have relied on models of long-run forward looking costs when establishing prices for the services and facilities provided by incumbent local exchange carriers. These models produce results that are fundamentally complicated long-run forecasts: what constant price(s) can the incumbent charge for the output it produces that will just recover its expenses and allow it to earn a reasonable return on and of its capital investments. This paper discusses the underlying assumptions of these forecasts and identifies methods for properly representing their inherent uncertainty in the estimates produced by cost models.
KeywordsCash Flow Cost Model Real Option Input Price Federal Communication Commission
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