1. Toward a Unified Theory of Access to Local Telephone Networks
Christopher S. Yoo
University of Pennsylvania Law School
April 18, 2008

2. The Inadequacy of Current Theory
The classic approach to network regulation
Regulates price of outputs to customers
Bases rates on cost
Needs no theory of network architecture
The shift from rate regulation to access regulation
Regulates price of inputs to competitors
Still bases regulated rates on direct costs
Requires a theory of network configuration
April 18, 2008
Yoo - Breakup of AT&T

3. A Theory of Network Configuration
Based on principles of “graph theory”
Models interactions among network components
Surpasses literature on network economic effects
Takes into account more than network size
Provides insights into optimal network configuration, cost, capacity, and reliability
Reveals impact of access regulation
April 18, 2008
Yoo - Breakup of AT&T

4. Limitations of the Current, Cost-Based Approach to Regulation
In effect treats affected elements as if they existed in a vacuum
Overlooks the fact that access can have implications for the network as a whole
If capacity is slack, may overcompensate
If capacity is saturated, may undercompensate
May alter optimal configuration
May degrade reliability/quality of service in unpredictable ways
April 18, 2008
Yoo - Breakup of AT&T

5. Limitations of the Current, Cost-Based Approach to Access Regulation
April 18, 2008
Yoo - Breakup of AT&T

6. Limitations of the Current, Cost-Based Approach to Access Regulation
April 18, 2008
Yoo - Breakup of AT&T

7. Limitations of the Current, Cost-Based Approach to Access Regulation
April 18, 2008
Yoo - Breakup of AT&T

8. Limitations of the Current, Cost-Based Approach to Access Regulation
April 18, 2008
Yoo - Breakup of AT&T

9. Limitations of the Current, Cost-Based Approach to Access Regulation
April 18, 2008
Yoo - Breakup of AT&T

10. Limitations of the Current, Cost-Based Approach to Access Regulation
April 18, 2008
Yoo - Breakup of AT&T

11. Limitations of the Current, Cost-Based Approach to Access Regulation
April 18, 2008
Yoo - Breakup of AT&T

12. Max Flow/Min Cut Theoremd 11 1 38 8 10 2 7 e 8 2 7 1 26 1 s t c b 24 2 18 C A B f D
April 18, 2008
Yoo - Breakup of AT&T

13. Toward a General Theory of Network Configuration
Provides theory of efficient network design
Relative cost of switching and linking
Magnitude & variability of network demand
Economies of scale from aggregating traffic
Tradeoff between cost and reliability
Offers formal method for determining rates that captures interactions among network elements
Calculation would be fact and information intensive
Results are very sensitive to the model’s assumptions
April 18, 2008
Yoo - Breakup of AT&T

14. Toward a More Modest Theory of Network Configuration
Distinguishes among five different types of access
Provides a basis for analyzing effects on:
Capacity and configuration
Transaction costs
April 18, 2008
Yoo - Breakup of AT&T

15. The Five Different Types of Access
Interconnection access
(reciprocal connection of networks I and II I
Retail access
(final customer A) A B II
Wholesale access
(wholesaler B and final customer A)
Platform access (for final customer A and supplier of complements B) A B
Unbundled access
(for competitor C) C
April 18, 2008
Yoo - Breakup of AT&T

16. The Impact of Different Types of Access
Different effect on demand, which in turn affects optimal configuration and reliability
Possible introduction of flows in core of network
Differences in transaction costs/alteration of the natural boundaries of the firm
Variations in the amount of network information outside each network provider’s control
Opportunities for arbitrage created by the lack of a unified approach to access pricing
April 18, 2008
Yoo - Breakup of AT&T