Effects of Prices for Local Network Interconnection on Market Structure in the US

This chapter examines how incumbents and entrants respond to prices for network interconnection in telecommunications, including prices for unbundled network elements. Most studies of the effects of these prices find that lower prices encourage entry and encourage entrants to use more unbundled network elements. Missing from this literature are studies of how incumbents respond to the intercon-nection prices they charge. US telecommunications laws place an obligation on in-cumbents to provide interconnection at any technically feasible point, implying that interconnection prices should not affect incumbents' provision of interconnection services. Using data from 1998, evidence is found that low unbundled network ele-ment prices result in lower entry, perhaps indicating that US incumbents limit entry. No evidence is found that incumbents hinder entrants from gaining market share for customers who receive more calls than they make (such as Internet Service Provid-ers) or from gaining market share using resold services