 is expensive the efficient network is a ring." As the costs of switching fall, some networks can reduce reliance on large-scale central switching facilities. "Network functionality will therefore continue to rush out to the edges," where users are located. C. The Output of Networks Industry observers and policymakers are sometimes puzzled by the question, "What does a network produce?" The answer is that networks produce transmission, trans- portation, or delivery services. The services produced by a network are intermediate inputs rather than final consumption goods in most cases. They are thus means to an end, rather than ends in themselves. Identifying the output of a network is critical to understanding the costs and pricing of that output. Understand- ing what a network produces is essential for evaluating public policies toward networks. Perhaps the best example of a network service is the delivery of a letter by a postal service. Mailing a letter provides only indirect benefits for the sender and the recipient. The benefits to the sender and the recipient derive from the commu- nication itself. For example, the sender may be a buyer who is ordering a product from the recipient, who is a seller. The benefits of the communication reflect the benefits from the economic transaction. Postal services do not generate benefits from the economic transaction: they only make a particular communication feasi- ble. The substitutes for the standard postal delivery of a paper document include travel by the buyer or seller, fax transmission, telephone communication, e-mail, and Internet-based exchange of documents and data. To illustrate the general principle, consider the most basic case of a single buyer and a single seller. The seller can provide the buyer one unit of a good at a cost C to the seller. The buyer obtains a benefit V from consuming the unit of the good Networks in Telecommunications provided by the seller. The buyer and the seller are separated by a geographic distance. They are connected by a network of