tor faced with the new requirements of the 1996 Telecom Act could have foreseen this turmoil. Looking at the sharp rise in equity prices in 1998-2000, regulators must have thought they were on the right track at first. After all, the skyrocketing value of the new entrants' stocks was attracting large amounts of capital, and the prices of the local incumbents' stocks had not fallen measurably below overall market averages. Surely, these were signals that the burgeoning competition was going to provide a bonanza of benefits. Once the Internet and telecom stocks went into a dive, everything changed, including faith in the new regulatory regime. On the way down, new local entrants complained bitterly that the regulated wholesale rates were too onerous to let them use the incumbents' networks, and that the regulatory rules were not always enforced. The resulting accounting scan- dals left two of the four largest long-distance companies in a state of col- lapse and forced a third to dismiss its senior officers. 15 In 2000-02 a new set of issues appeared. The Internet was creating a demand for higher-speed, "broadband" connections in residences and Introduction small businesses that the incumbent local telecoms were unable to satisfy without substantial new investment in network facilities. But would these companies invest in such facilities if the entrants, now under enormous duress, could immediately lease them at low, regulated rates? For their part, the struggling entrants were asking for even more favorable terms for access to the incumbents' facilities. How was a regulator to respond to these pres- sures? In past decades, a regulator's only worry was to allow the monopo- list a sufficient return on capital to stay in business and to maintain service quality. Now the issue was how new technologies could be deployed to provide innovative services when promoting investment in these technolo- gies was likely to conflict with keeping the new entrants alive. By 2001 it was also clear that telecom revenues were no longer