Layer Architectures and Regulation in Telecommunications

Competition Policy and Antitrust, Networks, the Internet, and Cloud Computing, Networks and Infrastructure and Net Neutrality

Article Snapshot


Andrew Odlyzko


Free Ride: Deficiencies of the MCI 'Layers' Policy Model and the Need for Principles that Encourage Competition in the New IP World, July 2004, p. 16-19


This paper looks at how telecommuncations carriers could be regulated.

Policy Relevance

Rules to regulate networks need to be simple, or they will do more harm than good. Carriers need some pricing freedom.

Main Points

  • Traditional telecommunications law lays down different rules for Internet service providers, telephone companies, cable companies, and so on. But these old categories are breaking down as these firms increasing offer multiple and similar services.

  • Today’s networks are built in layers. There is a layer of physical network, such as fiber optic cable and switches. Then there is a software layer, the “Internet protocol” layer. Different networks provide different services, but fit together using this common technology.

  • This follows general economic trends. In computing, firms operate on a large scale, but tend to specialize into hardware, software, and so on.

  • Historic examples of regulation based on layers include the regulation of canals and railways. Canals were not allowed to offer complete transportation service, they could only offer carriage to different competing boat and barge services. But the rules have to be simple or they will be manipulated by the carriers and cannot work.

  • A big drawback of regulation by layers, especially in communications, is that it is difficult to allow the carriers to charge different rates for different kind of traffic. But allowing this kind of pricing freedom might be necessary for the network to grow.

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