The Demand for International Telecommunications in Italy

In this paper we estimate the demand for international telephony in Italy. By following a point-to-point approach, we estimate simultaneously outgoing and incoming traffic. We show that the ”reverse calling effect”, namely the impact of incoming traffic on the amount of calls placed by Italian residents, is the most relevant determinant of the total amount of telephone traffic from Italy to the rest of the world. The global price elasticity is found to be lower than one, thus suggesting a very inelastic demand. We include among the regressors the number of internet hosts in Italy and in the country receiving the calls; this variable is intended as a proxy for the use of the internet as an international communication channel. We show that the number of hosts has a negative impact on the demand for international calls thus suggesting that internet-based communication channels tend to reduce the market for standard calls. Finally, income together with the dimension of telephone network and tourism are also found to be positive determinants of the demand.