Specifically, an ADCo can and is willing to offer elements with an economic cost of C'([S.sub.w]), and at a fully remunerative price of C([S.sub.w])/[S.sub.w] (i.e., average cost).
In other words, the average cost of the ADCo may be below the opportunity cost (or minimum element price) of its potential integrated rivals.
Table 2 above can be expanded to include the minimum price of the ADCo, assuming that the ADCo and the integrated provider have the same cost function, but that ADCo, by definition, has no retail market share.
The condition under which the ADCo can profitably service the wholesale market does not require that the ADCo exhaust its scale economies.
Residual Public Interest Benefits--The Impact of the ADCo on the Incentives of the Dominant Incumbent
Perhaps the most important benefit of the ADCo would be its potential effect on the incentives of the dominant incumbent to exercise market power (i.e., by raising prices or restricting output) or to engage in efforts to deter new entry via strategic nonprice behavior.
For example, it may just be possible that an ADCo, and its customers serving the retail market could grow large enough that the market shares of the integrated firms, both wholesale and retail, fall sufficiently to render them valid competitors in the wholesale market.
More importantly, it may be the case that the presence of an ADCo will have an even more profound effect on long-term industry structure.
The presence of an ADCo may just be the catalyst needed to provide an incumbent with the incentive to disaggregate its network facilities from its marketing operations voluntarily.
Accordingly, if economies of scale are sufficiently large, then reaching a scale of operation that allows the entrant to compete with the ILEC may be best achieved through a wholesale-only entry strategy--an ADCo. The ADCo can consolidate the consumer demand held by retail CLECs, thereby reducing risk and costs, and expanding output quickly.
(14.) An "ADCo" is a very different concept from a "LoopCo." A "LoopCo" is formed by the structural separation of the incumbent's local access network facilities from the incumbent's marketing operations.
(79.) The ADCo cannot sell elements at marginal cost, whereas the incumbent may do so because its network costs are sunk.