Entry in Local Telecommunication Markets
DONALD L. ALEXANDER
and ROBERT M. FEINBERG
Department of Economics, Western Michigan University, 1903 West Michigan Avenue,
Kalamazoo, MI 49008, USA
Department of Economics, American University, Washington, DC, USA
Abstract. In this paper, we explore the determinants of recent entry into local exchange
service, and the role that regulatory policies have had in aiding this policy objective. Our
results suggest that the 1996 Telecommunications Act did lead to some entry, but that strategic
non-price behavior by incumbents may have oﬀset this impact to some extent. We also ﬁnd
that regulatory policies and market fundamentals play an important role in determining entry.
Clearly, market size (measured in various ways) is an important determinant of entry, while
there is empirical support for the role of more ﬂexible regulatory mechanisms in promoting
Key words: Deregulation, entry and telecommunications.
JEL Classiﬁcations: L5, L96, L98.
The Telecommunications Act of 1996 (hereinafter Telecommunications Act
or Act) marked the ﬁrst signiﬁcant attempt in the 20th century to promote
competition in local telecommunication markets in the United States,
which have historically been dominated by incumbent local-exchange
companies (LECs). Speciﬁcally, the Act contained two major provisions
that policymakers anticipated would lead to the same type of competition
that had emerged in long-distance markets during the previous decade.
First, Section 253 (a) eliminates a state’s authority to erect legal entry
Author for correspondence: E-mails: firstname.lastname@example.org, email@example.com
Telecommunications Act of 1996, Public Law 104–104, 110 Stat. 56 (February 8, 1996). In
August 1996, the Federal Communications Commission (FCC) released the Implementation of
the Local Competition Provisions in the Telecommunications Act of 1996, First Report & Order,
CC Dkt. No. 96–98 (August 8, 1996), which outlined the details for implementing the various
provisions of the Telecommunications Act for promoting competition in local-exchange markets.
See Vogelsang and Mitchell (1997) for an excellent discussion of the FCC’s First Report &
Review of Industrial Organization 25: 107–127, 2004.
Ó 2004 Kluwer Academic Publishers. Printed in the Netherlands.