Toward a Unified Theory of Access to Local Telephone Networks

The Enduring Lessons of the Breakup of AT&T: A Twenty-Five Year Retrospective. \u27 Conference held at the University of Pennsylvania Law School on April 18-19, 2008. Over the past several decades, regulatory authorities have imposed an increasingly broad array of access requirements on local telephone providers. In so doing, policymakers typically applied previous approaches to access regulation without fully considering whether the regulatory justifications used in favor of those previous access requirements remained valid. They also allowed each access regime to be governed by a different pricing methodology and set access prices in a way that treated each network component as if it existed in isolation. The result was a regulatory regime that was internally inconsistent and vulnerable to regulatory arbitrage. In this Article, Professors Daniel Spulber and Christopher Yoo trace the development of these access regimes and evaluate the continuing validity of the rationales traditionally invoked to justify mandating access to local telephone networks (e.g., natural monopoly, network economic effects, vertical exclusion, and ruinous competition) in a world in which competition among local telephone providers is a real possibility. They then apply a five-part framework for classifying different types of access based on the branch of mathematics known as graph theory that models the interactions among different components. This framework shows how different types of access can have a differential impact on network configuration, capacity, reliability, and cost. It also captures the extent to which networks constitute complex systems in which network components interact with one another in ways that can make network behavior quite unpredictable. In addition, the framework demonstrates how mandated access can increase transaction costs by forcing local telephone providers to externalize functions that would be more efficiently provided within the boundaries of the firm

Rethinking Broadband Internet Access

The emergence of broadband Internet technologies, such as cable modem and digital subscriber line (DSL) systems, has reopened debates over how the Internet should be regulated. Advocates of network neutrality and open access to cable modem systems have proposed extending the regulatory regime developed to govern conventional telephone and narrowband Internet service to broadband. A critical analysis of the rationales traditionally invoked to justify the regulation of telecommunications networks--such as natural monopoly, network economic effects, vertical exclusion, and the dangers of ruinous competition--reveals that those rationales depend on empirical and theoretical preconditions that do not apply to broadband. In addition, the current policy debate treats access to networks as a unitary phenomenon that fails to take into account how different types of access requirements can affect network performance in widely divergent ways. The current debate also fails to capture how individual network elements can interact in ways that can be quite unpredictable. In this Article, Professors Spulber and Yoo analyze broadband access using a theory of network configuration based on a branch of mathematics known as graph theory, which captures the interactions between individual components that cause networks to behave as complex systems. This theory yields a five-part classification system that provides insights into the effect of different types of access on network cost, capacity, reliability, and transaction costs

Toward a Unified Theory of Access to Local Telephone Systems

One of the most distinctive developments in telecommunications policy over the past few decades has been the increasingly broad array of access requirements regulatory authorities have imposed on local telephone providers. In so doing, policymakers did not fully consider whether the justifications for regulating telecommunications remained valid. They also allowed each access regime to be governed by its own pricing methodology and set access prices in a way that treated each network component as if it existed in isolation. The result was a regulatory regime that was internally inconsistent, vulnerable to regulatory arbitrage, and unable to capture the interactions among network elements that give networks their distinctive character. In this Article, Professors Daniel Spulber and Christopher Yoo trace the development of these access regimes and evaluate the extent to which the emergence of competition among local telephone providers has undercut the rationales traditionally invoked to justify regulating local telephone networks (e.g., natural monopoly, network economic effects, vertical exclusion, and ruinous competition). They then apply a five-part framework for classifying different types of access that models the interactions among different network components. This framework demonstrates the impact of different types of access on network configuration, capacity, reliability, and cost. The framework also demonstrates how mandated access can increase transaction costs by forcing local telephone providers to externalize functions that would be more efficiently provided within the boundaries of the firm

Antitrust, the Internet, and the Economics of Networks

Network industries, including the Internet, have shown significant growth, substantial competition, and rapid innovation. This Chapter examines antitrust policy towards network industries. The discussion considers the policy implications of various concepts in the economics of networks: natural monopoly, network economic effects, vertical exclusion, and dynamic efficiency. Our analysis finds that antitrust policy makers should not presume that network industries are more subject to monopolization than other industries. We find that deregulation and the strength of competition in network industries have removed justifications for structural separation as a remedy. Also, we argue that that deregulation and competition have effectively eliminated support for application of the essential facilities doctrine. Antitrust policy in network industries should be guided by considerations of dynamic efficiency