CRTP-8

"Fiber in the Backbone: Infrastructure Quality Upgradation and Productive Efficiency 
in the U.S. Telecommunications Industry"

Sumit K. Majumdar
Revised December 1995

This study evaluates the impact that network quality upgradation, via the deployment of 
fiber optic cabling, has had on the productive efficiency of local operating companies 
in the U.S. telecommunications industry. While the extent of fiber optic diffusion in 
the local operating company sector has been relatively low, it is found that after 
controlling for a variety of other factors which may affect performance, the extent 
of diffusion of fiber optic cabling plays a significant role in influencing firm-level 
productive efficiency of the local operating companies for the years, 1988 to 1990, that 
are studied, thus justifying the large investments made in fiber optic cabling of the 
information superhighway. In addition, results with respect to the control variables 
evaluated indicate that the Baby-Bells are superior in productive efficiency relative 
to independent operating companies, while the introduction of price-cap (incentive) 
regulation as an alterantive to rate-of-return (cost-based) regulation of local 
telephone companies has also had a strongly positive impact on firm-level productivity.