Profitability, Productivity and Price Recovery Patterns in the U.S. Telecommunications Industry

We undertake a study where we examine changes in the profitability, productivity and price recovery of firms in the U.S. telecommunications industry over a sixteen-year period. We assess the performance of thirty-three major companies in the local-exchange sector over six time periods 1975, 1978, 1981, 1984, 1987 and 1990, using a performance analysis model which disaggregates the profitability measure into two components: productivity and price recovery. We demonstrate the computation of performance using this technique. Our study indicates that the opening up of markets has had a significant impact on different dimensions of performance in the telecommunications industry, also validating a number of theoretical assumptions about the impact that industry changes are expected to have on firms.