Toward a Unified Theory of Access to Local Telephone Systems

77 Pages Posted: 21 May 2009 Last revised: 25 May 2009

Daniel F. Spulber

Northwestern University - Kellogg School of Management

Christopher S. Yoo

University of Pennsylvania Law School; University of Pennsylvania - Annenberg School for Communication; University of Pennsylvania - School of Engineering and Applied Science

Abstract

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.

Keywords: Antitrust, telecommunications, access regulation, graph theory, natural monopoly, network economic effects, vertical exclusion, managed competition, transaction costs, complex systems

JEL Classification: K21, K23, L96

Suggested Citation

Spulber, Daniel F. and Yoo, Christopher S., Toward a Unified Theory of Access to Local Telephone Systems. Federal Communications Law Journal, Vol. 61, p. 43, 2008; U of Penn, Inst for Law & Econ Research Paper No. 09-18; U of Penn Law School, Public Law Research Paper No. 09-14. Available at SSRN: https://ssrn.com/abstract=1408124

Daniel F. Spulber

Northwestern University - Kellogg School of Management ( email )

606 Leverone Hall
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8675 (Phone)
847-467-1777 (Fax)

Christopher S. Yoo (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom St.
Philadelphia, PA 19104-6204
United States
(215) 746-8772 (Phone)

HOME PAGE: http://www.law.upenn.edu/faculty/csyoo/

University of Pennsylvania - Annenberg School for Communication ( email )

3620 Walnut St.
Philadelphia, PA 19104-6220
United States
(215) 746-8772 (Phone)

University of Pennsylvania - School of Engineering and Applied Science ( email )

3330 Walnut St.
Philadelphia, PA 19104-6309
United States
(215) 746-8772 (Phone)

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