or network services. Regulatory price constraints and compelled access requirements will not be responsive to increases in market demand, in contrast to market prices, thus further lowering incentives to invest. Also, access price regulations and compelled access can distort interconnection decisions and affect access agreements between companies that build and operate networks. Understanding the optimal design of networks is critical for public policy. There is a tendency on the part of regulators to view networks in retrospect (Sidak and Spulber 1997b). Networks are viewed as established facilities SO that regula- tors can compel access with relatively little effect on network design. Of course, regulatory policies affect decisions about the design of future networks. They also affect decisions to maintain the performance of existing networks and decisions to extend the scope of a network or to upgrade its technology. This chapter examines factors that affect the design and development of networks. The complex process of network design shows how input choices are the result of a series of interconnected Networks in Telecommunications Choose input and output functions based on specifications obtained through research and development Engineering input and output functions Choose engineering specifications to maximize output subject to given inputs and the input-engineering specifications constraint Production function Choose inputs to minimize expenditures subject to given outputs and the production function constraint Cost function Calculate revenue minus costs as a function of network outputs Choose network outputs to maximize expected profit Profit function Figure 2.1. Building networks. engineering and economic decisions. As a result, compelling access is likely to be inconsistent with this series of decisions by occupying a portion of a particular network component's capacity. Building networks has four conceptual steps. These four steps are represented in Figure 2.1. First, based on research and development