Daniel C.H. Mah
This paper provides a framework by which rival firms’ incentives for
interconnection in unregulated telecommunications markets may be analyzed and
argues that the widespread voluntary interconnection observed among ISPs is
anomalous when compared with examples of other similar markets from U.S. industrial
history. However, the fact that it is anomalous provides an opportunity to test
common explanations and to explore new explanations for the remarkable connectivity
observed among ISPs through a comparative analysis. The comparative analysis
reveals that (1) network effects and competitive forces in telecommunications
markets will not necessarily drive firms to interconnect their networks voluntarily
as there are other options to them, and (2) government actions played an important
role in shaping the interconnection behavior competing firms in telecommunications
markets. The article then explores some of the implications of these findings
for telecommunications policy, and interconnection regulation in particular.