If different components of local phone and cable TV networks are deregulated, what degree of competition is likely? Similar questions arise for data networks. For example, a number of observers believe that by ceding backbone transport to commercial providers, the federal government has endorsed above-cost pricing by a small oligopoly of providers. Looking ahead, equilibrium market structures may be quite different for the emerging integrated services networks than they are for the current specialized networks.
One interesting question is the interaction between pricing schemes and market structure. If competing backbones continue to offer only connection pricing, would an entrepreneur be able to skim off high-value users by charging usage prices, but offering more efficient congestion control? Alternatively, would a flat-rate connection price provider be able to undercut usage-price providers, by capturing a large share of low-value ``baseload'' customers who prefer to pay for congestion with delay rather than cash? The interaction between pricing and market structure may have important policy implications, because certain types of pricing may rely on compatibilities between competing networks that will enable efficient accounting and billing. Thus, compatibility regulation may be needed, similar to the interconnect rules imposed on regional Bell operating companies.