Tuesday, 24 June 2014
Federal Communications Commission (FCC)
A few years ago, the Federal Communications Commission (FCC) eliminated a
rule that required Baby Bells to provide rivals access and discounted
rates to current broadband facilities and other networks they may build
in the future. Providers of digital subscriber lines (DSL) that use the
local phone loop are particularly affected. Some argue that the
agreement will likely raise many DSL providers’ costs and reduce
competition. Providers of high-speed Internet services utilizing cable,
satellite or wireless technologies will not be directly affected, since
such providers are not bound by the same facilities-sharing requirements
as firms using the local phone networks. In light of the FCC ruling,
suppose that News Corp., which controls the United States’ largest
satellite-to-TV broadcaster, is contemplating launching a Spaceway
satellite that could provide highs-peed Internet service. Prior to
launching the Spaceway satellite, suppose that News Corp. used least
squares to estimate the regression line of demand for satellite Internet
services. The best-fitting results indicate that demand is Qdsat =
152.5 – .9Psat + 1.05PDSL + 1.10P cable (in thousands), where Psat is
the price of satellite Internet service, PDSL is the price of DSL
Internet service, and Pcable is the price of high-speed cable Internet
service. Suppose that after the FCC’s ruling the price of DSL, PDSL, is
$30 per month and the monthly price of high-speed cable Internet,
Pcable, is $30. Furthermore, News Corp. has identified that its monthly
revenues need to be at least $14 million to cover its monthly costs. If
News Corp. set its monthly subscription price for satellite Internet
service at $50, would its revenue be sufficiently high to cover its
cost? Is it possible for News Corp. to cover its cost given the current
demand function? Justify your answer.
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