 management level, the organization interacts in the marketplace with customers and suppli- ers. These market interactions must be translated into organizational responses through network management. The critical interface between market transactions and network management is where the configuration of the network occurs. The key question is why the three activities - service management, network management, and element management - should be contained within the same organization. The fact that telecommunications firms tend to engage in retail merchant functions Economic Effects of Regulating Access to Networks suggests that the retail transaction costs are lower for a vertically integrated firm than for a standalone reseller of retail services. The core activities of the telecommunications management network - service management, network management, and element management require extensive coordination within the organization. This type of coordination might be difficult to replicate with arm's-length contracts. In principle, under the right market condi- tions, these activities need not be contained within the same organization. Service management includes retail and wholesale activities that the network firm could outsource to external service providers. Network management could be outsourced to others, just as many companies outsource the management of their internal communications systems. Finally, element management could be outsourced to one or many service providers, just as companies have external service providers that operate or service pieces of equipment such as computers, copy machines, or specialized capital machinery. The outsourcing question is especially critical for regulatory policy. The out- sourcing of service management, particularly the retail service stage, is important because it corresponds to wholesale access. Recall that wholesale access means that the network firm makes its services available on a wholesale basis to a competitor who in turn acts as a retailer. The competitor resells 