Network Regulation: The Many Faces of Access

Abstract

Telecommunications regulation has experienced a fundamental shift from rate regulation to increased reliance on compelled access, perhaps best exemplified by the Telecommunications Act of 1996's imposition of no fewer than four new 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. In this article we propose a system inspired by the discipline of mathematics known as graph theory that integrates all of the different forms of access into a single analytical framework. This system separates different access regimes into five categories: (1) retail access, (2) wholesale access, (3) interconnection access, (4) platform access, and (5) unbundled access. It also provides insights into how each type of access complicates the already difficult problems of network configuration and management and introduces inefficient biases into decisions about network capacity and design. The approach we propose also provides insights into the transaction cost implications of the different types of access. Drawing on the Coasean theory of the firm, our approach examines the tradeoffs between internal governance costs and the external transaction costs of providing access to offer a theory of network boundaries. This framework shows how access regulation distorts networks' natural boundaries and provides a basis for evaluating whether private ordering through markets would lead to more efficient network design.