minimum subsidy they would require in order to provide the service. All else being equal, the bid would be awarded to the bidder with the lowest subsidy requirement. Thus, competitive bidding would have identified the minimum subsidy actually required for a qualified service provider to provide the service.

### c. Interconnection and Access Pricing

Another idea that has been suggested to make the postal sector more competitive is that there should be interconnection between the new entrants into the network of JPCo. This would avoid the inefficient duplication of already built out infrastructure. Again this is an interesting notion, but the problem would be the interconnection fee. If the Post is able to charge a prohibitively high interconnection fee, then we would simply replicate problems we have seen in the telecoms area. A number of cases in the telecoms area, such as Telmex (already discussed) have shown us that excessive interconnection fees are very difficult to control when the incumbent possessed bottleneck facilities.

The difference in postal arises from the question of how difficult it is to build postal infrastructure. Since much of the postal cost is in labor costs, and the facilities needed are not complex, it may be possible to build out infrastructure and that this infrastructure would not be unnecessarily duplicative. This would be analogous to having a number of express delivery pick-up facilities. This kind of infrastructure is to be differentiated from other networks where fixed capital cost is substantially greater, such as telecommunications, or electricity. While no-one considers it odd that there are a number of different express delivery pick up facilities, it would be very strange (and more importantly a waste of resources) to have multiple electricity grids (although even this area no longer exhibits the natural monopoly characteristics that it once did, due to competition from other sources of energy, and new technologies for delivering electrical energy).

Weighed against this is the concern that interconnection with JPCo will be a one-sided negotiation with all the power in the hands of the Post. This is likely, if past experience is anything to go by to lead to a very high interconnection rate. It is unlikely that JFTC would be able to successfully discipline such a powerful actor, and this could lead to adverse market effects. In particular, a delay in being able to correct anti-competitive practices can have significant market effects for the new entrants in this market.

A significant difference between telecom interconnection and postal interconnection is that while postal interconnection can be limited, it cannot be denied totally, as there is nothing to stop users sorting and using the postal network in a bulk fashion, albeit at single piece rates. The question is what is the most efficient form of sanctioned access, and how should it work. One can have interconnection into upstream facilities, such as the mail-sorting equipment or downstream at delivery points. In the case of upstream, interconnection theories usually rely on some variant of the essential facilities doctrine. In the case of postal, these facilities are not truly essential in the antitrust sense. They can be duplicated with relative ease (or improved with innovation) and to require interconnection may not give rise to the most competitive solution in the long run. Given that the facility is not truly essential, normal competition rules should apply. If the Post Office increases the price, the new entrant may well develop its own solution, thus restraining the Post's pricing. However, this does not take into account the economies of scope and historic government ownership of the Post Office. Downstream access would allow new entrants to deliver on some