regime, the FCC gave CAPs the right to place in the incumbent's central offices any equipment needed to terminate calls. The FCC believed that Specifically, the use of fiber optics provided dramatic improvements in the amount of bandwidth available. It also decreased service costs in general and made them much less distance-sensitive. Fiber optics also allowed CAPs to take advantage of the efficiencies made possible by computer processing, such as improved switching and digital compression. Networks in Telecommunications this right, which the FCC dubbed "physical collocation," was necessary to ensure that the interconnection provided to the CAPs was comparable to that used by the incumbent for itself. If the incumbent's central office lacked the physical space to accommodate physical collocation, the incumbent could instead provide "virtual collocation," which required the incumbent to install and maintain on its property equipment that allowed the requesting carrier to interconnect with the incumbent's network through a location outside of the incumbent's central office. Interconnec- tion prices for both physical and virtual collocation would be governed by price caps. As in other price cap regimes, initial rates would be based on historical cost. The FCC also rejected arguments that the physical collocation requirement violated the Takings Clause on the grounds that physical takings doctrine was not appli- cable to public utility property, which was governed exclusively by the framework applied to regulatory takings. Even assuming that physical collocation did consti- tute a taking, the FCC argued in the alternative that the compensation provided was sufficient to render it constitutional. State regulatory authorities issued similar orders in order to facilitate CAP entry into local telephone service (FCC 1992b, 1993a). The D.C. Circuit struck down the FCC's collocation rules on the grounds that they exceeded the FCC's statutory authority. The court reasoned that giving CAPs the right to place equipment in the 