mbents. The stan- dard textbook definition of natural monopoly, which underlies most public policy discussions, presumes that incumbents and entrants have the same cost function and the same underlying technology. Under this theory, there is not enough room in the market for more than one firm, and an entrant could add little to produc- tive capacity (Baumol et al. 1982). It is unrealistic, however, to assume that the incumbent and the entrant will employ the same technology. Given the rapid pace of technological change in telecommunications, an entrant can operate a network with a different configuration than the incumbent's. For example, an incumbent might operate a traditional telecommunications network with twisted copper wire, a century-old technology, whereas an entrant might offer wireless service. Other transmission technologies including coaxial cable television systems, fiber-optic cable, various land-based wireless systems, and satellite-based systems have differ- ent cost and performance properties. Transmission networks' various functions, including telephony, mobile communications, data transmission, and video, sug- gest that different transmission technologies are suited to different uses. As a result, entrants that offer specialized networks targeted to particular applications are likely to utilize technologies different from those used by the incumbent. Moreover, the entrant can target specialized market segments without duplicating the incum- bent's system (Spulber 1995, 2002a). Competition from Internet telephony, cable telephony, and wireless provides alternatives to the traditional telephone system. Thus, competitive markets for network services can form, and market prices con- tinue to be an accurate measure of value. 2. Sunk Costs The substantial sunk costs in establishing telecommunications networks, partic- ularly the traditional wireline network, do not prevent markets from allocating network services or prevent market prices from representing an accurate measure of value. Sunk costs are