The Costs and Benefits of Long-Distance Entry: Regulation and Non-Price Discrimination

A primary goal of the 1996 Telecommunications Act is to encourage competition in longdistance telephone markets. Four years after passage of this legislation, Bell Operating Companies (“BOCs”) have been granted permission to offer long-distance services in only one state. The regulatory barrier to entry is justified on grounds that the BOCs have the ability to discriminate against incumbent long-distance carriers in the provision of essential access services. We take this premise as given and quantify the critical level of discrimination required to offset the positive consumers’ surplus gains associated with the enhanced competition resulting from BOC entry into long-distance markets.