Optional telephone subscription scheme: A unique experiment in Korea

In 1998, Korea adopted an optional telephone subscription scheme (OTSS), under which new or existing subscribers could choose either the old or the new subscription plan. The main difference between these two plans is the ratio of the connection fee to the monthly charge. This paper attempts to investigate several policy questions related to the change of the telephone subscription scheme. First, the paper examines the relationship between the telephone subscription scheme and competition in telecommunications, especially local competition. Secondly, we conduct international comparisons of the connection fee and the monthly charge to examine economically efficient fixed rate structures. Finally, after describing how the price levels for the new plan are determined, a consumer choice model is set up in order to predict the number of subscribers who will buy the new plan. The experience of the OTSS in Korea provides various implications for telecommunications policy issues in many countries.