roviders could offer such services, the services appeared to function most efficiently when their capa- bilities were designed directly into the telephone switch. Allowing local telephone companies to offer these services on an integrated basis, however, was inconsistent with the regime of nondiscriminatory access, interoperability, and transparency implicit in equal access and structural separation and needed an express regulatory waiver before they could be provided in this manner (FCC 1986b). Estimates of the cost of the delay in the introduction of such services caused by regulations to protect against vertical exclusion exceed $1 billion per year (Hausman 1997). Another classic example of the problems associated with attempts to regu- late vertical exclusion is the emergence of digital transmission, during which local telephone companies began moving away from routing traffic on a synchronous circuit-switched basis and began to employ asynchronous packet-switched proto- cols in portions of their networks. The shift to digital transmission technologies required the network to engage in protocol conversion at different points, which again was inconsistent with the regime of interoperability and transparency implicit in equal access and structural separation. After considerable regulatory wrangling, the FCC concluded that the costs of the regulations exceeded their benefits and permitted protocol conversion notwithstanding its inconsistency with the commit- ment to vertical disintegration embodied in the second Computer Inquiry (FCC 1983b, 1985b, 1985c, 1986a, 1996e). 19 These examples illustrate some of the efficiency losses associated with attempting to regulate vertical exclusion in telecommunications. Technological 19 The Court of Appeals sustained the 1996 order on judicial review (Bell Atl. Tel. Cos. V. FCC, 131 F.3d 1044 (D.C. Cir. 1997)). Networks in Telecommunications developments can cause interfaces that were once natural points of separation between companies to shift or collapse. These costs render