Network Regulation: The Many Faces of Access

Abstract:     
Telecommunications regulation has experienced a fundamental shift from rate regulation to increased reliance on compelled access. Of particular note, the Telecommunications Act of 1996 imposed no fewer than four access requirements. Unfortunately, each access requirement is governed by a separate set of rules for determining both the scope and the price of access. The resulting ad hoc regime has created difficult definitional problems and opportunities for regulatory arbitrage. What is needed is a system capable of integrating all of the different forms of access into a single analytical framework. Professors Spulber and Yoo propose just such a system inspired by the discipline of mathematics known as graph theory. They set forth a system for classifying different access regimes into five categories: (1) retail access, (2) wholesale access, (3) interconnection access, (4) platform access, and (5) unbundled access. They then describe the effect of each type of access on network capacity and configuration. Specifically, they show how each type of access further complicates the already difficult problems of network management and examine how mandated access introduces inefficient biases into decisions about network capacity and design. The discussion also considers the transaction cost implications of the different types of access. Building on the Coasean theory of the firm, the authors present a theory of network boundaries. Firms establish networks based on the tradeoffs between internal governance costs and the external transaction costs of providing access. They conclude by considering the effects of regulation on the boundaries of networks and examining the likelihood that private ordering through markets will lead to efficient network design.

Keywords: network regulation, telecommunications

Working Paper Series