monopoly in the intercity market by virtue of its control of the local market and its control over the patents which made high quality long distance voice transmission possible, it was never obvious that the same natural monopoly features which seemed to characterize the intra-city market also characterize this intercity market. $ ^{10} $ And, as the size of this market has grown, its ability to support several viable competitors also has increased.

While more debatable, it is also possible that technological change may tend to increase the viability of competition in the intercity market. Initially, the intercity market was served, as the intra-city market had been, by copper wire transmission facilities. And since the costs of such facilities are largely insensitive to traffic volume, such a technology favors a single supplier. However, in the late 1960's and throughout the 1970's, when the initial entry of competitors into toll markets began, microwave and satellite transmission became economic modes for handling intercity traffic. Since the costs of such facilities may be considerably more modular and volume sensitive, perhaps they lend themselves to competition among a number of smaller suppliers.

More recently, fiber optics has become the predominant mode for handling telecommunications traffic. The investment in the fiber optic transmission facility itself, like copper wire, is largely insensitive to volume, seemingly favoring a single supplier of service. However, with fiber optics, an increasingly large portion of the total transmission investment is not in the laying of fiber, but in installing electronics to increase the volume of traffic which the fibers can handle. Since investment in electronics to expand transmission capability is modular, this may reduce the potential for scale economies and lumpiness in transmission investment and increases the viability of competition.

#### 3.3. Electricity

A somewhat different but equally decisive form of market expansion has occurred with respect to electricity production. As structured historically, most electric utilities in the U.S. are vertically integrated monopoly suppliers of generation, transmission and distribution services within their own service territories. Each company seeks to construct sufficient capacity to meet anticipated load within its franchised service territory with a margin for reliability. Historically then, all the capacity serving a particular retail market was located in that service territory and owned by a single supplier. This creates a monopoly supplier in need of pervasive regulation.

Over time, however, in order to reduce the reserve margins needed to maintain reliability, utilities constructed interlocking transmission facilities, permitting adjoining utilities to rely upon each other when their own facilities are inadequate to meet load. In many regions, extensive transmission networks have also been constructed to exploit permanent cost advantages. For example, in some regions, long transmission networks were built to bring power from hydro resources to distant markets or to increase the usage of low cost minemouth coal or wellhead gas facilities. Over time, these integrated transmission networks have grown to be used not only to