Capacity Charge and Peak-Load Pricing ∗

Several European telecommunications regulatory agencies have re-cently introduced a fixed capacity charge for regulating the access to the incumbent’s network. This mechanism is specially relevant if we consider that the principal driver of network cost is the peak-hour ca-pacity cost and that firms generally use a peak-load pricing policy to efficiently manage their load curve. The main purpose of this paper is to give a set of necessary conditions for the determination of the opti-mal capacity charge under continuous and interdependent demand for telecommunications services. We show that the optimal capacity charge and the access-minute charge analysed by Armstrong, Doyle, and Vick-ers (1996) have a similar structure and imply the same payment for the entrant. However, in the case of the optimal capacity charge the marginal opportunity cost incurred by the incumbent reflects its loss of profits in all time periods. The analysis of the optimal capacity charge is extended to the case where there is a competitor with market power. In this case, the charge should be increased to avoid that the entrant fixes a longer peak period than the optimal. Moreover, we show that this correction induces an efficient management of the load by increas-ing the entrant’s peak price. In a multiproduct setting, the optimal capacity charge not necessarily implies an efficient use of the network