 and Other OECD Countries Some evidence on the comparative effects of competition may be found in telephone prices and investment in communications equipment in the United States and other countries of the Organization for Economic Cooperation and Development (OECD). It is important to stress, how- ever, that price comparisons may be misleading because of continuing reg- ulation of rates and service offerings in most countries. Liberalization and Telephone Prices The United States and Canada require regulated local companies to offer local service at a flat rate, but most other OECD countries have separate rates for renting a telephone line and placing local calls. Local calling rates generally vary greatly by time of day. As liberalization has proceeded, most countries have "rebalanced" their rates, that is, have raised local line rates and reduced carrier access charges for long distance. In most countries, local line rates for small and medium businesses are higher than local residential access rates, but this price discrimination is being reduced as entrants begin to exploit the arbitrage opportunities created by such a regulation. Telecom Reform in Other Countries In the United States and the European Union, local residential rates have remained fairly steady since liberalization. Real local rates in the United States declined by 11 percent between 1990 and 2000, but they rose in 2001-03 owing to rate rebalancing by the FCC. 41 As a result, real local rates were about 3.7 percent higher in 2003 than in the year before local competition was launched, 1995. In Europe, average local calling rates have risen slightly since 1998 for voice calls, but the spread of zero- priced Internet calling packages undoubtedly offsets this increase. 42 Since the United States had begun liberalizing and rebalancing long- distance rates long before 1996, its rates were much lower than in Canada or Europe in the early 1990s (see figure 9-2). However, long-distance rates fell sharply in Canada and Europe after long-distance market