An Economic Evaluation of New Optional Calling Plans in Telephone Service

Sung Ho Seol, Moon-Soo Kim

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DOI: 10.4236/me.2011.25101                

Abstract

With the growth of competition in the telecommunication market, optional calling plans were introduced in 1980s, have expanded dramatically in 1990s and now have become widespread rate systems in many countries. In this respect, the Korean telephone market also provided various rates. Compared to other countries, however, a special optional calling plan has activated in Korean market. It is a unique calling plan where rates are based on previous calls made. That plan provides high market performance, yet it arouses criticism in the industry. There are questions raised by professionals in the industry if that plan based on previous call made is fair to consumers and is it more effective than other type of calling plan. Considering this circumstance, we theoretically analyzed and compare between rate system based on previous call made and different rate system including unlimited flat-rate and BOT, by mainly the perspective of efficiency. The results show that rate system based on past calling patterns will be economically more efficient compared to other types. Therefore, it is necessary not to prohibit this rate system, rather selectively regulating or other flexible means of regulation is desirable, nevertheless it has some week point.

Keywords

Optional Calling Plans, Telephone Service, Pricing Scheme, Social Welfare, Regulation, Korea

Conflicts of Interest

The authors declare no conflicts of interest.

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