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

The Telecommunications Act of 1996 requires all incumbent local telephone companies to provide local entrants with access to various facilities and services of incumbents' local networks. In the case of Regional Bell Operating Companies (RBOCs) providing such cooperation is a pre-requisite for being allowed to offer long-distance services; GTE, however may offer long-distance services unconditionally, hence its incentives to cooperate should be weaker. Using an originally assembled data set, this paper compares the negotiations of AT&T, as a local entrant, with GTE and with the particular RBOC in various GTE states. The results suggest that differential incentives matter: despite the fact that regulatory obligations to cooperate apply to both GTE and the RBOCs, GTE is significantly less cooperative. Specifically, GTE litigates prematurely far more often, and negotiations with it take about seventy percent longer. Moreover, controlling for cost differences, GTE demands more favorable pricing from entrants for access to its networks. Tougher GTE demands are associated with better arbitration awards to both GTE and the RBOC in that state (perhaps because a state commission is reluctant to treat the incumbent carriers in its state very differently). Preliminary evidence from an FCC survey suggests that, consistent with GTE's greater resistance, there is less entry into GTE's territories.