Efficient Interconnection Charges and Capacity-Based Pricing

Capacity-based interconnection (CBI) prices vary exactly with the costs a network provider incurs when supplying an interconnecting party. That is, they equal incremental costs, rather than being averaged over any output measure. CBI prices can resemble bill and keep. For two-sided interconnection, CBI prices may not be first best efficient, because they fail to signal the marginal benefit gained by the other side of the market. However, for mature networks, this may have little impact on efficiency. CBI prices are not second best efficient on grounds of cost recovery. CBI prices with mark-ups for cost recovery are favorably compared with bill and keep and traditional per minute interconnection charges, including on packet-based networks