option of LMS would enhance economic welfare (Griffin and Mayor 1987), although even those favoring LMS concede that any such gains were modest (Kahn and Shew 1987). The failure of LMS to yield clear welfare benefits demonstrates how transaction costs can render usage-based pricing uneconomical. 13 See sources collected in Kahn and Shew (1987); and Parsons (1996). The Regulation of Broadband Networks and the Internet Interestingly, wireless telephone pricing has moved in the opposite direction. When cellular telephones first appeared, carriers tended to charge subscribers on a strict per-minute basis. Thus, as a theoretical matter, the wireless industry began with a pricing regime that was a model of usage sensitivity. Over time, wireless carriers began to relax their initial approach to pricing in two ways. First, they tended to sell peak minutes in bundles, SO that incremental usage was not fully metered. Second, carriers began to allow subscribers to use off-peak minutes for free. The wireless industry's abandonment of an established usage-based pricing regime in favor of one with flat-rate characteristics again attests to the complexity created by the presence of significant transaction costs. These conclusions are not unassailable by any means. For example, it is quite possible that the replacement of mechanical switches with first electrical and later digital switches has dramatically lowered the transaction costs of metering usage (Kahn and Shew 1987; Kaserman and Mayo 1994). In addition, the persistence of usage-based pricing of local telephone service in other countries raises questions of the universality of the benefits of flat-rate pricing. The argument advanced here does not, however, depend on any definitive resolution of these debates. The sheer variety of approaches to pricing local telephone service underscores the difficulty in determining whether the transaction costs are of sufficient magnitude to render usage-sensitive pricing uneconomical and demonstrates the potential benefits from allowing