hed services. Corresponding to these metering activities are costly back- office processes for billing customers and receiving payments. In addition, the network firm must make sure that the network's capacity is sufficient to provide services to individual customers. The indivisibility and inherent lag associated with expanding capacity and the sensitivity to variability render decisions about network configuration particularly complex. This is compounded by the transaction costs associated with making retail services available to all customers. The traditional method for implementing retail access is by having the carrier file a public tariff containing the terms under which the carrier will provide service to any customer. Tariffs are usually subject to reg- ulatory approval before going into force. The process of filing tariffs is notori- ously cumbersome, expensive, and time-consuming. The emergence of simplified, notice-oriented regimes has eased these burdens somewhat, but even these regimes impose significant transaction costs on network providers. Having to preannounce and preclear all terms of services also necessarily slows down the pace of change, can deter innovation in pricing and services, and can even facilitate collusion. Retail access would mean little if the carrier could render it a nullity by charg- ing an exorbitant price. As a result, retail access regimes typically include the requirement that rates be reasonable. The traditional cost-of-service approach to determining the reasonableness of rates is notoriously onerous and difficult to implement, requiring allocations of shared costs and determinations of proper rates of return and the prudence of investment that border on the arbitrary. It also distorts economic efficiency by biasing regulated entities away from production functions that emphasize operating expenses and toward more capital-intensive solutions. Although the institution of price caps was supposed to ameliorate many of these problems, they ultimately did not prove to be the 