On the Regulation of Networks as Complex Systems: A Graph Theory Approach

The dominant approach to regulating communications networks treats each network component as if it existed in isolation. In so doing, the current approach fails to capture one of the essential characteristics of networks, which is the complex manner in which components interact with one another when combined into an integrated system. In this Essay, Professors Daniel Spulber and Christopher Yoo propose a new regulatory framework based on the study of networks as complex systems. This framework would better reflect the interrelationships among network elements. They then apply the insights provided by this framework to a number of current policy issues, including the decision to apply the same methodology to set prices for interconnection and access to unbundled network elements under the Telecommunications Act of 1996, the decision to base access rates on cost, proposals to base access prices on market benchmarks, compelled access to broadband networks, and the regulation of Internet telephony. They also explore the extent to which the framework can be employed to support a formal calculation of regulated rates, concluding that a shift to a graph theoretical framework has the potential to revolutionize network policy.