Abstract: The competitive telecom network operators may refuse interconnection or may collude in levying high access price because of their own profit.The government’s regulation is necessary since both of the two kinds of conduct do harm consumers’ welfare.Using a three-stage game theory model containing Undercut-Proof Equilibrium mechanism and some contribution factors such as network externalities,dominant (operator’s) market share,market capacity,and users’ switch cost,this paper analyzes the issues of telecom network interconnection,including (service) pricing,connection decision-making,access price regulation,and welfare change.It is concluded that there exists a rational section of access price,in which the telecom network operators will have impetus to interconnect each other and welfare will be improved.

Key words: telecom network competition, interconnection, network externalitities, game theory, Undercut-Proof Equilibrium