Empirical measurement of depreciation of telephone plant and equipment of local exchange carriers

In this paper, the authors measure the depreciation of telecom capital by measuring the performance change of that capital in production of local telecom services. The performance of the capital is measured by its marginal product in current production. The restricted variable cost function (RVCF) econometric model is used to estimate depreciation of the capital stocks of two major categories of telecommunication equipment of seven Regional Bell Operating Companies (RBOCs) for the period from 1984 to 1995. No producer equilibrium assumption is required by the method applied in the estimation. The annual depreciation shortfall, based on 1995 capital stocks, probably exceeds $25 billion