Demand for telephone lines and universal service in Spain

Abstract

In this paper we use a model of demand for telephone lines to derive an econometric model of the net demand for new access lines in Spain, for the period 1980-1993, using quarterly observations. We use cointegration techniques to obtain long and short run equations, both estimated separately in two steps and jointly, The results show a strong sensitivy of the net demand for new lines to domestic usage price with an elasticity greater than one, an income elasticity also greater than one, and an elasticity with respect to price of access, in absolute value, less than one. We find that a tariff restructuring that lowers intemational and long distance rates while raises access rates might have a very small effect on the net demand for new lines. This suggests that the objective of universal service might be compatible with the kinds of tariff restructuring that have been recently considered in Spain.