Some Estimates of Returns to Scale in the Telephone Industry

By estimating production functions from statistical data on the telephone industry, it is possible to calculate coefficients that indicate probable levels of returns to scale. Two different production functions are employed, later suitably modified to take account of technological change, and input requirements functions are calculated. An attempt is made to describe average cost curves. The regressions are based on FCC data for the Bell System and the United States Independent Telephone Association (USITA) data for independents. The investigation concludes that what appear to have been important and increasing returns to scale in the Bell System over the period 1946-1970, were largely the result of technological improvement. The vast differences in average plant and value-added size between Bell operating companies and USITA companies are not reflected in comparable differences in returns to scale.