The Economics of Pricing Network Interconnection: Theory and Application to the Market for Telecommunications in New Zealand
Published in Yale Journal on Regulation
Deregulation of telecommunications is inspired by the belief that competition will prevent monopolistic behavior more efficiently than direct price regulation by the government. Compared to regulation, competition offers consumers the dynamic benefits of increased efficiency and technological progress. The New Zealand government was motivated by this vision when it recently privatized the national telecommunications company, Telecom of New Zealand (“Telecom”). Clear Communications (“Clear”) promptly proposed to compete with Telecom in the provision of local telephone service. Both companies required an interconnection agreement so that the calls originating on either network could be terminated on the other. Their dispute over the appropriate terms of interconnection was litigated under the antitrust laws of New Zealand. The economic debate between Clear and Telecom encompassed issues of efficiency, successful competition, and technological progress. The current trend towards telecommunications deregulation in the United States and other nations renders the New Zealand experience an interesting preview of issues that are likely to arise elsewhere.
