t. Ten years later, AT&T was broken up into separate local companies and a long-distance, equipment, and research company. The industry became vertically frag- mented as a result of regulatory distortions interacting with antitrust, not through market forces. Once AT&T was separated from its local operating companies, regulators were forced to establish explicit access charges through which the new long-distance companies would pay the local com- panies to connect their calls. All long-distance carriers were to be provided "equal access"-that is, connections of the same quality at the same rates- for interstate calls. State regulators would not create similar rules for the The Death of Distance and of the Long-Distance Carriers shorter intrastate calls for years thereafter because the states wanted to al- low local companies to continue using excess long-distance charges to de- fray the costs of local service. 1 The Major Players The first new entrant into long distance before the AT&T divestiture was MCI, a carrier established in 1969 with service between St. Louis and Chicago. After the Federal Communications Commission permitted gen- eral "special carrier" entry in 1971, a number of other firms began to enter. Among these were the forerunners of Sprint, the third largest carrier. Several others started up in the late 1970s and 1980s, many of which com- bined into what is now MCI (formerly WorldCom). By 2000 scores of companies were offering long-distance services, many of them simply resellers of the capacity of the larger carriers. The three largest companies accounted for 70 percent of long-distance revenues (table 6-1). Since that time, however, revenues have begun to decline dra- matically. By 2002 many of these companies were in severe difficulty, two (WorldCom and Global Crossing) were in bankruptcy, one (Concert) had ceased operations, and Bell Canada Enterprises had placed one of its carri- ers (Teleglobe) in bankruptcy. The long-distance competition that began in the 1970s was now working SO well that