ulatory arbitrage opportunities in delivering yesterday's services. The emphasis should be on facilitating investment in new, high-speed services and the applications or content that may be required to amortize such investment. Regulated Competition Has Not Worked As the preceding chapters have demonstrated, the U.S. experience with telecom liberalization since 1996 has not been a happy one. For nine years, regulators have attempted to create competition in local services and have A Look Back and a Look Forward succeeded mostly in sowing confusion and uncertainty in a sector in the grip of declining revenues. Because of the new regulatory provisions in the 1996 Telecommunications Act, a legal and political battle developed among the incumbent local telephone carriers-principally the Bell com- panies-and the long-distance companies and the new local entrants (the CLECs). The latter two groups are now in steep decline after spending more than $200 billion on capital facilities between 1996 and 2003. In the post-1996 era of telecom regulation, considerable effort was put into creating an environment conducive to the entry of new carriers into fixed-wire local markets. The entrants this attracted offered little in the way of innovation or new services. They were mainly interested in exploit- ing the arbitrage opportunities created through the regulation of wholesale and retail rates, and most of them failed with a vengeance when the tele- com stock market bubble burst in 2000-02. The regulators' response was to try to protect some of their progeny by creating larger potential arbitrage margins through the unbundled network element (UNE) platform. Unfor- tunately, this strategy simply allowed the arbitrageur entrants (that is, those with no local capital facilities) to grow at the expense of those who had already invested billions of dollars. Regulation thus helped to condemn to an early death the only set of new entrants who could possibly innovate through their own network facilities, though most of the latter firms