And even more interaction and overlap is expected. While it is impossible to predict exactly how these markets will evolve and what form they will take in the future, it is certain that they will continue to be networked and will be closer together. So, if we know that we will continue to have networked industries where firms must provide interconnection to their competitors, and we do not know what forms those industries will take, then we need to start thinking about this issue more generally, beyond current indsutry definitions. And we need models of interconnection pricing that are general enough to be applied to different networked industries, both current and future. Each firm that wishes to provide in this downstream market must interconnect with some subset of its competitors.
Interconnection is an input obtained in the upstream market.
This is true for both local telephone and for the Internet. Most firms are going to provide the networked service downstream to the end-users and provide interconnection to their downstream competitors in the upstream market. There may be firms that don't have exclusive control over access to a significant customer base so they are not providing interconnection, but are obtaining interconnection from the upstream market, in a more one-way relationship. The critical issue here is the possible incentive for players with upstream market power to price interconnection in a way that further increases their concentration in the downstream market, making the downstream market less competitive. As is more obvious in the local telephone case, interconnection pricing has the potential to be used as a basis for limiting competition and leveraging market power through upstream market pricing to increase concentration in the downstream market.