The impact and politics of entry regulation on intrastate telephone rates

This paper examines the effects of regulatory barriers to the entry of the interstate long-distance carriers into the intraLATA toll service market. With these barriers, the local telephone companies can charge supracompetitive rates for intraLATA toll calls and use the excess revenues to price local exchange service below cost. We use a reduced form econometric price model to see whether these entry barriers have increased intraLATA toll rates. The results indicate that intraLATA toll rates in states that enjoin all types of long distance carriers from providing intraLATA service are about 7.5 per cent higher than in states that allow some sort of competition. In contrast, only preventing the entry of the largest facilities-based carriers does not affect intraLATA rates.