 culty surviving. The two largest North American suppliers, Lucent and Nortel, were pushed close to bankruptcy, and the market capitalization of large European firms such as Nokia, Marconi, and Alcatel dropped by more than two-thirds. As this book goes to press, the gloom of the past four years is beginning to lift for some parts of the telecommunications sector. In the remaining chapters, I examine in more detail what went wrong and what went right in the U.S. sector since 1996 and provide some discussion of developments in other countries. Local Competition under the 1996 Act ecades of regulation have left the U.S. telecommunications sector with a distorted rate structure. 1 A substantial share of long-distance revenue has traditionally been used to defray the non-traffic-sensitive costs of the local network, through carrier access charges and excessive intrastate rates. In addition, local residential rates have been kept artificially low, par- ticularly in less densely populated areas, while local single-line business rates are generally more than twice as high, despite the fact that the aver- age business line is shorter than the average residential line.2 In view of this distortion, entrants should have ample opportunity to target business and residential subscribers that use a large amount of long-distance service, par- ticularly in the areas of greatest population density. Even so, entrants have no road map for success because their experience with local competition is SO limited. The last time the United States had competitive local telephone markets was at the beginning of the twentieth century, after the initial Bell patents expired. 3 That history would be of lit- tle use to an entrant contemplating entry into today's market, with its sophisticated modern technology. The Difficult Economics of Local Entry When the 1996 Telecommunications Act opened all telecommunications markets to entry, long-distance rates were still far above incremental cost, Local Competition under the 1996 Act partly because of e