This chapter provides background material. It first explains the basics of telecommunications technology. It then gives a short account of the developments in the telecommunications industry in Europe and the United States, including regulatory issues. Finally it discusses the characteristics of telecommunications markets and regulatory policy from the viewpoint of the literature on industrial organization and regulation.

Technology

This section gives a brief overview of the telecommunications technology. It can be skipped by readers who are familiar with telecommunications markets, as the information presented here is of an introductory and descriptive nature. The reader should keep in mind that telecommunications technology is changing very rapidly owing to technological progress and that this section only describes the basic elements.

Circuit-switched networks

This subsection briefly describes the main elements of fixed, “circuit-switched” telecommunications systems. Although other types of networks are gaining importance (see the next subsection), circuit-switched telephony is still the main type of telecommunications service in current, regulated markets.

The traditional telecommunications network, that is, the fixed network to which consumers are connected, is often called the public switched telephone network (PSTN). The PSTN is a circuit-switched network,that is, each telephone call reserves an end-to-end physical circuit between the calling party and called party during a telephone call. For the duration of a call, this circuit is fully dedicated to that call and is not available to other users of the network.