Date Issued: 
December 1, 2000

Jay Atkinson and Christopher Barnekov.  

OSP Working Paper 34 (Dec 2000) develops a consistent, competitively neutral regulatory regime for interconnection between telecommunications networks.  It proposes a default "bill and keep" solution in which carriers would split equally those costs that are solely incremental to interconnection, and recover all remaining costs from their own customers. The analysis differs from previous work primarily in that it distinguishes the costs incremental to interconnection from those incremental to increased traffic volume.

The paper demonstrates, for several basic network types, that this default rule would be competitively neutral and encourage efficient subscription and interconnection decisions.  It also would resolve serious problems regarding common cost allocation, externalities, and gaming that arise under current interconnection regimes and under other proposed resolutions.  The key finding is that it is essential to isolate those costs incremental to interconnection
per se.