 reg- ulatory uncertainty, but it declined more in states that were reducing UNE rates than in those that did not (see figure 5-3). This is hardly conclusive evi- dence of the adverse investment incentive effects of low UNE rates, but at least it correlates changes in investment spending with regulatory changes occurring before or during the period that the expenditures are occurring. Effect of the 1996 Act on Incumbent Local Companies Figure 5-3. Capital Expenditures by Bell Companies: States with UNE Rate Reductions in 1996-2002 versus States with No UNE Changes Billions of dollars UNE reductions No UNE change Source: FCC, Armis data (http://www.fcc.gov/wcb/armis/); Billy Jack Gregg, A Survey of Network Unbundled Element Prices in the United States (National Regulatory Research Institute), periodic issues. When I attempted to replicate the regression analysis of Willig and his associates using various published estimates of UNE-P rates for 2000-03, I found that the inverse relationship between capital spending and the wholesale (UNE-P) rates they identified is much stronger in the 1996-99 period than in 2000-03 (see the appendix for details). This result suggests that Bell companies' investment decisions for 1996-99 responded more strongly to 2000-03 UNE-P rates than did their 2000-03 decisions, which is simply not plausible. A more reasonable inference would be that greater capital spending in 1996-99 led to lower wholesale rates in 2000-03 as reg- ulators insisted that the Bell companies pass on the lower costs induced by such spending to their rivals in the form of lower wholesale rates. Indeed, a simple regression of the UNE-P rate in 2002 on the FCC's measure of costs, the state regulatory variables, and the Bell company's 1996-99 cap- ital spending in that state provides a statistically significant negative coef- ficient on the 1996-99 capital spending. If Bell companies adjust their investment plans to variations in the UNE-P rate because they think low UNE-P rates will lead to more com- petition, this e