Local exchange competition in early US network development: considerations for developing countries

This paper examines the claim that competition between the Bell system and independent telephone companies, and not AT&T's regulated monopoly, was responsible for the rapid growth in telephone penetration in the United States. A mathematical model is developed to test if competition contributed to network expansion, when alternative explanations such as diffusion and economic growth are also taken into account. The model is estimated with time series data on telephone penetration in the US from 1876 to 1982, using both Ordinary Least Squares (OLS) and Feasible Generalized Least Squares (FGLS). The results indicate that local exchange competition is indeed a significant influence on increase in telephone penetration, even in the early stages of network development. This has clear policy implications for the current transition to competition in developing countries.