 it was driving most carriers into severe financial difficulty and perhaps out of existence altogether. Long-Distance Arbitrage For more than a decade after the AT&T divestiture, the new long-distance companies drove down AT&T's market share relentlessly. These companies were attracted by the difference between AT&T's regulated rates and the access charges paid to the local companies to originate and terminate their calls. Given AT&T's large market share and its inability to reduce rates selectively to counter its new rivals because of regulation, AT&T simply watched its share of the market decline, while it pocketed the enormous cash flows created by regulation. The FCC understood that long-distance rates were far too high because it had kept regulated interstate access charges too high. 3 Therefore, it began to drive these access charges down, compensating the local carriers for the lost revenues by adding a rising monthly "subscriber-line charge" to customers' local bills. This was a sen- sible rate rebalancing policy, and it provided a continuing entry incentive The Death of Distance and of the Long-Distance Carriers Table 6-1. U.S. Long-Distance Revenues Millions of dollars Company 38,110 33,942 27,531 22,814 WorldCom 22,998 21,259 17,659 16,062 Sprint 9,038 8,424 7,076 6,336 Qwest 3,044 3,180 3,202 2,180 Global Crossing 2,683 2,042 2,098 Other long-distance and wireless carriers 27,126 24,681 21,242 19,166 Total (excluding incumbent local carriers) 102,999 93,528 78,808 66,558 Incumbent local carriers 6,617 5,772 4,889 12,042 Total 109,615 99,300 83,697 78,600 Source: FCC, Statistics of Communications Common Carriers, 2003-04 (October 2004), table 1.4. a. Preliminary. into long distance because of the lag in the adjustment of retail rates to these lower costs. Rates and Access Charges As table 6-2 shows, long-distance rates were far above access charges right after AT&T was broken up. The new competition from MCI, Sprint (or its antecedents), and numerous resellers placed downward pressure on retail rates t