added a provision repealing Sections 29 and 30 of the Post Office Act, 1969, which limit the liability o f the Post Office.

However on 6 May, during the next report stage of the Bill, the Minister of State for Prices and Consumer Protection argued against the provision on the grounds that it would be impossible to prove that a letter had been posted or a telephone call made, and that liability would increase tariffs. Instead, he announced that discussions would take place between the Post Office, POUNC and the government on a new 'Code of Conduct' for the Post Office, which would improve the consumer's position with respect to telephone rental rel~ates, directory errors and damage to or loss of unregistered parcels. The Opposition spokesman conditionally accepted the compromise, adding that if they were dissatisfied by the contents of the code of practice, its implementation, or by

consumer reaction, they would again seek to repeal Sections 29 and 30 of the Act.

Roger Pye, Communications Studies and

Planning, London, UK

1 The complexity of US policy making for telecommunications is described by P. Polishuk, 3"elecommunications policy making and institutions of the US government', Telecommunications Policy, Vol 1, No 1, 1976, pp 52-67. = The P'I-I" is a government ministry in Austria, Belgium, Federal Republic of Germany, France, Ireland, the Netherlands, Portugal, and Switzerland. It is a public owned company in Finland, Iceland, Norway, Sweden, and the UK. In Italy, overall responsibility rests with a ministry; a government agency, ASST, provides trunk service; local service is provided by SIP, a private company in which the government has a shareholding.

Focus on Europe~Book reviews

through public holding companies. In Denmark, overall responsibility and trunk service are provided by a government agency, the General Directorate of Posts and Telegraphs; local service is provided by six municipally owned companies. In Spain, a ministry again has planning responsibility and services are provided by a private company, CNTE. In Greece, service is provided by the Hellenic Tele- communicat ions Organisat ion, an independent company. 3 Telecommunications HQ staff numbered 20 300 in March 1976, Postal HQ staff amounted to 3500 and Central HQ staff to 1200 (Post Office Report and Accounts, 1975-76). 4 In 1973, the Ministry of Posts and Tele- communications had a total staff of 400 (The Disperal of Government Work from London, HMSO, London, Cmnd 5322, 1973). SAn operator of a transmitter requires a licence from the Home Department to operate the system at a specified frequency and' power and, unless the operator is the Post Office, the BBC or the Independent Broadcasting Authority, a licence from the Post Office permitting the operation under the Post Office's monopoly.

Book reviews Efficient pricing: what's the benefit ?

OPTIMAL PRICING OF LOCAL TELEPHONE SERVICE

by Bridger M. Mitchell

Report R- 1962-MF, The Rand Corporation, Santa Monica, CA, 1976

Professor C.N. Parkinson's legendary committee meeting on the costs of nuclear power stations spent most of its time challenging the tenders for the construction of bicycle sheds - an accessible and easily understood topic. At times the neglect of communications and informat ion problems by economists seems an example of the same phenomenon. The attention lavished on the economics of highway planning, for example, provides a startling contrast. Consequently, Bridget Mitchell's technically excellent and practically relevant study of pricing policy is a very welcome milestone in

the application of economic analysis to telecommunications.

The starting point for the Rand study is the current controversy in the USA over the introduction of 'usage sensitive pricing' for local telephone calls in place of the traditional fiat-rate tariff. Mitchell's analytical approach promises to be applicable to a much wider range of problems in pricing and investment appraisal, as well. It involves calculating the changes in the total benefits of telephone service that are associated with a given tariff change, allowing for the resulting change in demand for calls and connections. 'Total benefits' are defined in terms of two concepts derived from the theory of welfare economics: 'consumers' surplus' or the difference between the actual price and what the user is willing to pay; and 'producers' surplus', which is the difference between the price and the marginal or incremental cost of providing additional amounts of service.

Practical estimation of total benefits demands extensive information about both the demand function for telephone service and about costs. On both points, the Rand study provides an extremely valuable synthesis of what is known, as well as publishing a good deal of information not widely available before. Where demand for local telephone service is concerned, the data are familiar and, especially for North America, still quite limited.

Nevertheless, the analysis of demand patterns under fiat-rate tariffs provides some intriguing insights: notably that in the lower part of the income distribution, the calling rate is highest for the lowest-income groups. This startling result is, like the tendency of low-income households to live in high- rental city-centre property, quite explicable in terms of microeconomic theory. Among low-income house- holds, only those who have an unusually high propensity to make telephone calls will derive enough benefit from calling to make it worthwhile to pay the fixed charge for service.

T E L E C O M M U N I C A T I O N S P O L I C Y S e p t e m b e r 1 9 7 7 359

Book reviews

Mitchell's data on costs are a good deal better than one might expect from a US study conducted outside the telephone companies. Had the author had better access to costs models and data within AT&T, more precise cost estimates would no doubt have been possible. Nevertheless, his discussion of the direct cost of local call metering and billing is particularly interesting. It illustrates the very strong relationship between measurement and accounting costs, and technology. Estimates of the total cost of metering, on an annual basis, range from $50 per line for small electromechanical exchanges to $15 for the large AT&T No I crossbar exchange and between $2 and $5 for ESS electronic exchanges.

The results of applying Mitchell's analytical apparatus to the specific problem of local call pricing in the USA are striking. The full range of sensitivity analyses generate estimates of the change, in total benefits of telephone service ranging from +9% to --3%, but the extremely conservative assumptions used make the upper figure much the more plausible of the two. It implies that, in the USA as a whole, an overall gain in economic efficiency worth $250 million annually would result from introducing optimal usage sensitive

pricing. Adding differential peak/off- peak pricing to the scheme would double or triple these benefits. Mitchell also finds that, although price discrimination between residential and business subscribers is justified in a flat- rate pricing scheme, the greatest benefits of all would be provided by a usage sensitive scheme without discrimination.

Disappointingly, there is little discussion of the issue of 'equity' or the distribution of benefits between different social groups, which has loomed so large in public discussions of usage- sensitive pricing. This is all the more disappointing because the Rand study provides the 'raw material' for such an analysis: it estimates, for example, how far usage sensitive pricing would increase telephone penetration and depress calling rates among low-income groups.

Mitchell's results are so important - and so probably correct, in broad qualitative terms at least - that it seems churlish to carp at detailed points of method. One or two failings do stand out, however. The method used for deriving a family of household demand functions, jointly for connections and for calls, is highly ingenious, given the minimal data. However, several of the simplifying assumptions (such as the

linearity and the common origin value assumed for each of the curves) seem decidedly arbitrary. It would be reassuring to know how far the numerical results would be sensitive to changes in them. Perhaps a weightier criticism is that little or no justification is given for the procedure - very controversial among economists - of aggregating estimates of benefits for individuals or households to give a measure of 'total welfare'. Such an aggregation can be justified in these kinds of cases by an appeal to Kaldor and Hick's principle of 'notional compensation'; but the use of such a procedure surely ought not to be taken for granted without discussion.

Despite these problems, the Rand study will, one hopes, mark the end of the era when telephone planners could get away with vague assertions about the 'social utility' of this or that service, investment plan or pricing scheme. Cost and benefits can be calculated, if only imperfectly. Therefore they should be.

M~haelTyler, Comrnun~ations Studies and

Planning, London, UK

Telecommunications and isolation - view from the past

THE NAKED SUN

by Isaac Asimov

Fawcett Publications, Greenwich, Connecticut, 1957

Any review of a 20 year old book demands explanation. A review of a science fiction novel demands more. But The N a k e d Sun is its own justification. Long before the beginnings of 'video teleconferencing', the book described a 'trimensional viewing system'. While this alone might be worth considering, The N a k e d S u n represents Asimov's attempts to probe the sociology that might emerge when a whole planet adopts telework and telesocialisation as its norm. While Asimov's approach is pure speculation, it is at least good speculation, and it deserves special

attention in these days when telework is becoming a popular concept.

The N a k e d S u n is a murder mystery (the roboticist did it) set on the planet Solaria, a former Earth colony. Although Solaria is as large as Earth, its population is rigidly maintained at 20 000 people. The nearest houses are 200 miles away and most are much further. Each Solarian's house is maintained by a large staff of robots.

Massive distances generate massive communica t ion needs. Solaria addresses its needs with the trimensional viewing system (TVS), which creates the illusion that the other party is in the room with you. The system is so perfect that the story's protagonist, Earth's Plainclothesman Baley, is shocked when his first interviewee suddenly disappears.

As a side note, Asimov's reliance on

three-dimensional viewing causes us to wonder about the current general assumption in the teleconferencing literature that television conferencing (which is only 2-D) is 'the next best thing to being there'. The experimental literature has so far failed to uncover striking differences in users' reactions towards 2-D video systems and 1-D audio conferencing systems. Perhaps both video and audio are unconsciously viewed as lying close together on the spectrum of dimensionality - unlikely, admittedly, but an interesting thought.

Solarians differentiate between 'viewing' someone over the tri- mensional viewing system and 'seeing' the person face-to-face, or as they put it, 'in personal presence'. At first, the difference was probably mild, but by the time Baley visits the planet, social mores have crystallised around the

360 T E L E C O M M U N I C A T I O N S POLICY September 1977