Opening Networks to Competition

This book addresses the related problems of regulating and pricing access in network industries. Interconnection between network suppliers raises questions of how to sustain competition and realize economic efficiency. New entrants must have access to customers in a competitive industry, but the very nature of network industries limits potential entrants. The large fixed and sunk costs of constructing networks and the difficulty in acquiring the expertise and competencies embodied in the managerial and organizational structure of incumbents in the network industry make it difficult to enter this marketplace. As a result, new entrants, realizing that they may not be able to provide customers with service comparable to that of the incumbents, often look to negotiate an interconnection agreement. This book is divided into two parts. Part I assesses regulation and pricing access in network industries from an analytical and policy perspective. Part II presents a variety of case studies examining interconnection issues over time and across industries. The book concludes with the idea that no single economic model or theory is appropriate for all network industries and that one needs to factor in the policy objectives, economic forces, and trade-offs for the specific industry before arriving at a final policy decision.