Transforming Network Interconnection and Transport

Abstract

To best promote benefits to persons as consumers and creators of communication, information, and network services, regulators should seek to transform communications industry structure in a way that supports the most beneficial forms of competition. Recent experience with long-distance calling, leased lines, Internet peering, and local telephony illustrates that industry performance depends strongly not just on whether there is more or less competition, but also on the type of competition that develops. This evidence is explored in more detailed in a number of the author's papers, available on http://www.erols.com/dgalbi/telpol/think.htm and http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=33627

What are the most beneficial changes in industry structure that feasible regulatory policies could advance? This paper argues that a geographically comprehensive lattice of competing, independently owned network interconnection points, which I refer to as SIPs, provides a better basis for good long-term industry performance than intrusive regulation of inter-company interconnection and access, such as mandatory collocation, loop unbundling, and line sharing. To help promote the development of such a competitive industry structure, local telephone service providers should be required to provide zero-price termination for all telephone calls delivered to selected SIPs. Thus telephone call termination (including mobile call termination and terminating fax and modem calls over voice channels) becomes a simple regulatory obligation fulfilled from SIPs rather than a variety of wholesale services subject to ad hoc regulatory action and intense political and regulatory lobbying (non-customer-oriented competition). The focus of telephony regulation would shift from promoting telephony competition to promoting an industry structure that facilitates telecommunications capacity markets and bandwidth trading, the development of new broadband services, and the rapid and even geographic spread of new services.

JEL Classification: K23, L4, L5, L43, L96