Does Allowing the Bells to Offer InterLATA Long-Distance Service Affect Entry into Local Telephony?

Following the 1984 divestiture of AT&T, local telephone service was provided by several Regional Bell Operating Companies (RBOCs). The RBOCs served as monopoly providers of local telephone service in their respective territories but were prohibited from offering long-distance service to their in-region subscribers. Section 271 of the landmark Telecommunications Act of 1996 allows an RBOC to offer in-region long-distance service if it demonstrates that the local telephone exchange market is open to competitive entry. This study empirically evaluates the efficacy of this policy by considering the impact of RBOC entry into long-distance on the development of competitive entry into local telephony. The results suggest that section 271 has been successful in promoting entry into local telephony. However, aggregate price data suggest that this entry has not been realized with lower rates for residential telephone subscribers.