THE COMPETITIVE INCENTIVES OF VERTICALLY INTEGRATED LOCAL EXCHANGE CARRIERS - AN ECONOMIC AND POLICY ANALYSIS

The U.S. Congress passed sweeping telecommunications reform legislatio n in 1996 that will enable the Regional Bell Operating Companies (RBOC s) to enter the interLATA long-distance market once certain conditions are met. This legislation empowers the state public service commissio ns, the Federal Communications Commission and the Justice Department t o determine collectively when RBOC entry into interLATA long-distance markets satisfies the public interest. This article reveals that as lo ng as RBOC long-distance market shares remain below certain critical l evels, the RBOCs do not have the incentives (despite having the opport unity) to discriminate against their downstream competitors. These fin dings suggest that a public policy focused exclusively on eliminating the opportunity to discriminate may needlessly delay RBOC entry into i nterLATA markets and thereby deprive consumers of the benefits of enha nced competition.