Total Element Long Run Incremental Cost

What Does Total Element Long Run Incremental Cost Mean?

Total element long run incremental cost (TELRIC) is a common measure applied by telecommunications regulators in some jurisdictions to set access prices with the help of cost-based measures. In the United States, the Federal Communications Commission (FCC) provides a price ceiling to ensure that incumbent local exchange carriers (ILECs) charge competitive local exchange carriers a fair price for interconnection and co-location.

The FCC used the term TELRIC for the first time when it interpreted TELRIC’s role under the 1996 Telecommunications Act. This particular act was predicated on a higher level of unbundling by ILECs. Therefore, the act was centered on the idea that ILECs would have to lease components of the local telephone network to prospective competitors. Such competitors would then expect to blend these components together, possibly using their own elements to offer appropriate services to end users.

Techopedia Explains Total Element Long Run Incremental Cost

The total element long run incremental cost strategy presents some significant characteristics to determine pricing for telecommunications services and network elements:

• Costs determined according to TELRIC principles are incremental. TELRIC research consists of costs that are incurred only with respect to that element or service. The service alone justifies the costs, and the costs would not have been incurred if the service was not introduced.
• Costs recognized using a TELRIC analysis are forward-looking. The historical as well as embedded costs get ignored in support of the most affordable costs incurred by means of the presently available technology, whose cost could be realistically predicted according to the available data.
• The forward-looking costs discovered in TELRIC research are long-run costs. Over time, the plants and equipments should be replaced with the most efficient and economical equipment available.
• TELRIC studies recognize both volume-insensitive and volume-sensitive costs. Volume-sensitive costs refer to costs that fluctuate with variations in a service demand or functionality, such as switching costs. Volume insensitive costs refer to costs that do not fluctuate as per variations in the level of demand, such as the right-to-use fees for switch software.