reased slightly. These trends could not have been very heartening to entrants, or to their investors, who must have thought they could exploit the distorted regulated rate structure to gain a toehold. Moreover, the Bell companies' huge advantage in broad- band is likely to narrow the differential substantially. Assume that in 1999 investors could have foreseen that the entrants' total revenues per line, including wholesale revenues, would decline to the level they achieved in 2002, or $689 a year. 38 Also, assume optimistically that they could achieve cash-flow margins of 42 percent (equal to margins of the incumbents). In that case, the CLECs' cash flow would have aver- aged about $289 per line in 2002. Even then, to justify the market capi- talization of $20,000 per line achieved at the end of 1999, these carriers would have had to increase their subscribers at a rate of 24 percent a year ad infinitum, assuming a before-tax cost of capital of 25 percent. 39 But a 24 percent annual growth in lines would find the entrants owning all of the country's lines in just thirteen years, not a likely outcome. Alternatively, one could assume no subscriber growth and an annual cash flow percentage equal to that of the incumbents, in which case these CLECs would have had to have more than 30 percent of the country's Local Competition under the 1996 Act access lines at the end of 1999 to justify their market capitalization at the RBOCs' cost of capital. But at that time, the entrants had only 4 percent of the country's access lines and a much higher cost of capital. Clearly, the equity markets had placed a very optimistic set of bets on these companies in 1999. Why have CLEC end-user revenues per line generally been declining since 1997? Given the distorted local rate structure, one would have ex- pected entrants to target business customers and residential customers who spent heavily on telecommunications However, nearly two-thirds of the entrants' lines connect to residences and small businesses, and this share has been ris