Connectivity in the Commercial Internet

We study the 'backbone market' in the Internet. After discussing the structure of the Internet, we use an extension of the Katz-Shapiro network model to analyze the strategies that would be used by dominant backbone. We show that a larger backbone prefers a lower quality interconnection than the smaller one. We then analyze a 'targeted degradation' strategy where the larger backbone lowers the quality of interconnection to its smaller rivals in turn. Finally, we show that the qualitative results are robust to the possibility of 'multihoming' by clients.     

Anti‐Competitive Interconnection: the effects of the elasticity of consumers' expectations and the shape of the network effects function

I find that interconnection might cause the market to be less competitive, and might lead to an increase in the price firms charge for their product. Absent interconnection, firms compete for a consumer for two reasons. The first reason is to obtain revenue from selling the product to a consumer (as in the case without network effects). The second reason is that by expanding the network by one more consumer, the product becomes more attractive to all other consumers. Interconnection eliminates the second reason—when firms interconnect, they are no longer concerned with consumers' following the crowd. I show that consumers and society might be worse off from interconnection. I focus on two factors that make the (post‐interconnection) price increase larger: consumer expectations that are highly sensitive to prices and consumers putting a high value on small increases in network size at the equilibrium market shares. Both of these factors make firms highly competitive, but only if the firms' products' networks are not interconnected.     

Internet peering as a network of relations

This paper applies results from recent theoretical work on networks of relations to analyze optimal peering strategies for asymmetric Internet Service Providers (ISPs). From a network of relations perspective, ISPs’ asymmetry in bilateral peering agreements need not be a problem, since when these form a closed network, asymmetries are pooled and information transmission is faster. Both these effects reduce the incentives for opportunism in general, and interconnection quality degradation in particular. The paper also explains why bilateral monetary transfers between asymmetric ISPs (Bilateral Paid Peering), though potentially good for bilateral peering, may have negative effects on the sustainability of the overall peering network.     

The mixed blessing of a deregulatory endpoint for the public switched telephone network

Receiving authority to dismantle the wireline public switched telephone network (PSTN) will deliver a mixture of financial benefits and costs to incumbent carriers and also jeopardize longstanding legislative and regulatory goals seeking ubiquitous, affordable and fully interconnected networks. Even if incumbent carriers continue to provide basic telephone services via wireless facilities, they will benefit from substantial relaxation of common carriage duties, no longer having to serve as the carrier of last resort and having the opportunity to decide whether and where to provide service. On the other hand, incumbent carriers may have underestimated the substantial financial and marketplace advantages they also will likely lose in the deregulatory process. Legislators and policy makers also may have underestimated the impact of no longer having the ability to impose common carrier mandates that require carriers to interconnect so that end users have complete access to network services regardless of location.This paper will identify the potential problems resulting from prospective decisions by National Regulatory Authorities (NRAs), such as the United States Federal Communications Commission (FCC), to grant authority for telecommunications service providers to discontinue PSTN services. The paper also will consider whether in the absence of common carrier duties, private carriers providing telephone services, including Voice over the Internet Protocol (VoIP), voluntarily will agree to interconnect their networks. The paper will examine three recent carrier interconnection issues with an eye toward assessing whether a largely unregulated marketplace will create incentives for carriers to interconnect networks so that consumers will have ubiquitous access to PSTN replacement and other broadband services.The paper concludes that private carrier interconnection models and information service regulatory oversight may not solve all disputes, or promote universal service public policy goals. Recent Internet interconnection and television program carriage disputes involving major players such as Comcast, Level 3, Fox, Cablevision and Google point to the possibility of increasingly contentious negotiations that could result in balkanized telecommunications networks with at least temporary blockages to desired content and services by some consumers.     

Promoting effective competition through interconnection policy

Incumbent telephone companies argue for reliance on voluntary negotiations to determine the terms of interconnection, or alternatively for regulated access prices equal to those that an incumbent would accept voluntarily. Such prices are justified as necessary to prevent inefficient entry, based on an economic theory called the ‘parity principle’. This paper shows that the parity principle is largely inappropriate for setting interconnection prices in most current contexts, and that the claimed efficiency properties of the rule are often based on flawed, static analyses. Under dynamic considerations the parity principle can threaten the development of effective competition. The authors analyse examples where the parity principle has been advocated in the United States and New Zealand, explaining that interconnection charges are best set by legal or regulatory authority based on the costs of providing network access.     

企业的关系边界及主体关系模式的影响

在复杂适应系统理论视角下,企业是由投资者、经营管理者、员工以及供应商、消费者、规制者等利益相关者(主体)组成的关系网络,因此,企业的边界取决于不同利益相关者共同构成的关系网络。然而,关系网络的限度与范围又取决于利益相关者之间的关系模式。本文通过构建企业的多主体模型,借助计算机仿真软件NetLogo,动态模拟了构成企业的不同主体的关系模式对企业的关系边界的影响。研究结果表明,主体之间的竞争与合作关系对企业的关系边界有着重要影响:合作依赖模式下,企业关系边界有缩小的趋势;竞争对抗模式下,企业关系边界有增长的趋势,但是增速缓慢;竞合互动模式下,企业关系边界有快速扩张的趋势。     

Distinctive arrangements for international interconnection?

An issue of growing importance in telecommunications policy is the relationship between interconnection for domestic and international telephony. While international telephony's need for international transport is an inherent distinction, that factor will not determine distinctions in interconnection arrangements. Under the existing pricing structure for telephony, cross-border rent shifting is the key issue. Innovations in the pricing structure for telephony, whether through Internet telephony or other avenues, offer the potential for changing the structure of interconnection negotiations and eliminating distinctions between international and domestic telephony interconnection.     

不完全信息与网络产业激励性规制改革

规制体制改革的核心是解决信息不对称下的最优激励问题，规制体制设计的关键就是要设计有效的激励合约，为企业提供适当的激励以达到成本效率，从激励角度看，价格上限规制的效率最高，竞争是重要的激励性体制，网络产业竞争体制形成的关键是约束在位运营商排斥竞争行为和建立有效的互联资费政策。     

Pricing Network Interconnection: Advantages Held by Integrated Telecom Carriers

A recurring telecommunications policy debate centers on whether incumbent, vertically integrated local exchange carriers have an incentive to discriminate in price against down-stage service rivals who interconnect to their network (a price squeeze). The concern is typically voiced in one of two claims: (1) there is an incentive for an incumbent to use a price squeeze when access prices are set above long-run incremental cost; or (2) prices set at that cost are preferred for interconnection because they eliminate incentives for a price squeeze. In principle, form (1) is generally true (Proposition 1), but form (2) is generally not (Proposition 2), The proof of these Propositions reveals why pricing access at long-run incremental cost coupled with appropriate price floors in the down-stage market does eliminate the incentive to squeeze.     

A simple game-theoretic analysis of peering and transit contracting among Internet service providers

The paper presents a simple game-theoretic model of two Internet service providers (ISPs), drawn from a larger set consisting of Tiers-1 and -2 ISPs, who choose between peering and transit agreements. The study focuses on the costs of interconnection taking into account traffic imbalances. The analysis suggests that if the traffic flows and the costs of interconnection are fairly shared, the provider's peer, otherwise they choose transit. Moreover, the joint profits are maximized under the transit arrangement.     

The impact of the regulatory framework on fixed-mobile interconnection settlements: the case of China and Hong Kong

Network interconnection is one of the most critical issues in the process of telecommunications deregulation. An improperly interconnected new network is not dissimilar to an isolated network, while network externality remains a concern for subscribers who are searching for demand-side economies of scope. Traditional studies mainly focus on formal mechanisms of setting an interconnection price, while this study indicates that an appropriate regulatory framework is also one of the most important factors in settling effective network interconnection arrangements.     

Interconnection regulation in India: Lessons for developing countries

Interconnection is not only a major competition issue per se, it is also a critical element of the basic telecommunications agreement of the WTO. An important issue in interconnection regulation is interconnection charging especially in the context of a dominant incumbent. Most regulators in developing countries face challenges in setting interconnection prices in the absence of market information on the incumbent's or entrant's costs, competition or demand and models suited for developing countries that also adhere to the WTO guidelines. There are few papers that illustrate the challenges faced by regulators in such a context. This paper attempts to bridge the gap by highlighting the nature of interaction between the regulator, incumbent, judiciary and the political environment, the role of formal models in setting interconnection charges and the implications of rapid technological changes in a developing country context through a case study of India.The case study highlights the point that besides independence, it is important to vest enforcement powers in the regulatory agency for it to be credible. Incorporating the WTO interconnection guidelines within a developing country context has implications for network growth and poses challenges to the regulatory processes.Although Telecommunications Regulatory Authority of India (TRAI) started with a distortionary, inefficiently priced network providing low coverage and quality, it has meandered its way to a more reasonable network access pricing regime. The decreasing cost of technology and increasing incomes in India and political interventions in regulation have put pressure on TRAI to provide lower interconnection charges and faster telecom growth. Thus, it is pragmatic for regulators to start with a “quick and dirty” estimate, provided that they can signal the downward trend in interconnection pricing, rather than wait for the “correct” estimates.Adoption of future looking strategies (interconnection exchanges), use of a variety of formal models, and strengthening of regulatory capacity are all necessary steps in fostering a competitive environment. Interconnection regimes set up early in the reform process require a review. For successful competition, effective dispute resolution mechanisms and institutions are also important.     

Regulation and investment behaviour in the telecommunications sector: policies and patterns in US and Europe

This paper reports the results of the quantitative analysis of international experience of the relationship between infrastructure investment in the deployment of capacity that can carry large volumes of voice and data traffic and regulatory policy changes in the telecommunications sectors. It looks at the relationship between infrastructure investment for these infrastructure assets and the access pricing régimes for local exchange carriers in the United States and Europe. It then looks at the relationship between various aspects of regulatory and institutional policy changes in Europe and how they affect access prices.The paper finds that a lower access price promotes greater deployment of digital technology among US incumbent local exchange carriers (ILECs). Based on this finding, it suggests that it is in the ILECs interest to have access to their networks encouraged.The European data for interconnection are recent and far reaching conclusions are not feasible, but the findings, however, suggest that competition has worked by facilitating new entry through decreasing interconnection prices, although path dependencies, of existing and traditional concepts, in the mindsets of operators as well as regulators, may account for these findings.     

Interconnection in Network Industries

Recent deregulation of telecommunications in the U.S. and elsewhere has highlighted the importance of interconnection in network industries. In this paper, we analyse interconnection in a deregulated network where the participants compete in the final retail market. We consider both the case of a mature industry as well as one where a new entrant challenges the incumbent. In the later case, network externalities allow the incumbent to use the terms of interconnection to maintain its dominant position. Moreover, in either case, competition in the retail market can be undermined by collusion over access prices. We discuss the implications for some of the provisions of the new U.S. Telecommunications Act, specifically mandatory interconnection and reciprocity of tariffs, comparing these to the simple bill and keep rule.     

An Anticompetitive Effect of Eliminating Transport Barriers in Network Markets

This paper examines the welfare effects of physically interconnecting two (network) markets that were previously separated. In each market a different set of capacity-constrained firms operate. Firms engage in a supergame and collude whenever it is rational for them to do so.We find that, under certain parametric restrictions, interconnection of the two markets reduces total welfare. The collusive horizon may extend from a single market to the overall integrated market. In such case, interconnection can be viewed as “exporting” collusion, rather than competition.      

Ocean Carriers’ Collusion Under Antitrust Immunity: Evidence of Asymmetric Pass-Through

As fuel costs are the largest component of the shipping industry’s operating costs, this study examines whether ocean carriers pass fuel cost increases through to freight rates more quickly than they pass through fuel cost decreases. The focal price collusion theory suggests that such asymmetric pass-through could be a result of collusive behavior because collusion is easier to sustain when costs are falling than when costs are rising. Using a lag-adjustment model as the econometric framework, findings from this study show strong evidence for asymmetric adjustments of the US inbound freight rates in response to fuel cost changes. Such asymmetry persisted after the passage of the Ocean Shipping Reform Act of 1998. Moreover, the findings do not support the consumer search theory as an alternative explanation for the freight rate asymmetry.     

The impact of legislative change on the behavior of telecommunications carriers

This article examines the effect of the behavior of carriers on the legal arrangements that regulate them. Using James Buchanan's theory of constitutional contract, the paper shows that weaknesses in US telecommunications law have led carriers to engage in unproductive activities that move them closer to the “state of nature” instead of toward a superior outcome for all parties. This paper focuses on the period before and after the Telecommunications Act of 1996, a law with such a broad scope that there were many ambiguities and contradictions. Affected parties attempted to take advantage of these to design a constitutional contract that would favor them over their rivals. The paper focuses on the interconnection aspects of the law and presents recommendations for reducing unproductive activities.     

The economics of networks

I analyze the salient features of networks and point out the similarities between the economic structure of networks and the structure of vertically related industries. The analysis focuses on positive consumption and production externalities, commonly called network externalities. I discuss their sources and their effects on pricing and market structure. I distinguish between results that do not depend on the underlying industry microstructure (the ‘macro’ approach) and those that do (the ‘micro’ approach). I analyze the issues of compatibility, coordination to technical standards, interconnection and interoperability, and their effects on pricing and quality of services and on the value of network links in various ownership structures. I also briefly discuss the issue of interconnection fees for bottleneck facilities.     

Optimal reciprocal access pricing and collusion

This work extends the network competition model of Armstrong [(1998). Network interconnection in telecommunications. Economic Journal, 108, 545–564] and Laffont, Rey, and Tirole (1998). Network competition: I. Overview and nondiscriminatory pricing. RAND Journal of Economics, 29, 1–37] by assuming that operators can maintain a certain level of collusion in the unregulated retail market, and access prices may be regulated through non-linear tariffs. It emerges that, in the case of partially collusive environments, the regulator can design cost-based non-linear access charges such that the result is socially optimal.