Opening Networks to Competition

This text addresses the related problems of regulating and pricing access in network industries. This text 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. 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.