The Role of Incentives for Opening Monopoly Markets: Comparing GTE and BOC Cooperation with Local Entrants

TL;DR

This paper examines how different incentive structures under the 1996 Telecommunications Act influence incumbent local telephone companies' cooperation with entrants, revealing that Bell companies cooperate more readily than GTE due to additional incentives, leading to increased entry.

Contribution

It provides an empirical comparison of GTE and Bell companies' cooperation with entrants, highlighting the impact of incentive differences on market entry and negotiation outcomes.

Findings

Bell companies negotiate faster and with less litigation.

Bell companies offer more favorable access prices.

Greater entry occurs in Bell territories.

Abstract

While the 1996 Telecommunications Act requires all incumbent local telephone companies to cooperate with local entrants, section 271 of the Act provides the Bell companies (but not GTE) additional incentives to cooperate. Using an original data set, I compare the negotiations of AT&T, as a local entrant, with GTE and with the Bell companies in states where both operate. My results suggest that the differential incentives matter: The Bells accommodate entry more than does GTE, as evidenced in quicker agreements, less litigation, and more favorable prices offered for network access. Consistent with this, there is more entry into Bell territories