switching was no longer subject to UNE access requirements, largely because of the widescale deployment of competitive circuit switches and the investment disincen- tives created by sharing requirements (FCC 2005a). This time the court sustained the FCC's action (Covad Commc'ns Co. V. FCC, 450 F.3d 528, 546-49 (D.C. Cir. 2006)). Competition has even begun to emerge with respect to the local loop, the por- tion of the local telephone network thought most likely to retain natural monopoly characteristics. State public utility commissions have begun to deregulate local service to large business customers (Tardiff 2007), although the FCC continues to subject high-capacity loops (except for dark fiber) to UNE access obligations (FCC 2005a). Wireless has also emerged as a vibrant competitor in local telephone service in the residential and small business markets, with the number of wireless subscribers surpassing the number of wireline subscribers since 2004 and with Networks in Telecommunications 30 million American adults (roughly 14 percent) relying solely on their wireless phones for service. 13 Competition from VoIP provided via coaxial cable is starting to emerge for residential and small business customers as well. Although state and federal regulators have exhibited some reluctance to deregulate local telephone ser- vice on the basis of intermodal competition, as noted in Chapter 4, they have begun the process of deregulating local telephone service as well. 2. Network Economic Effects Policymakers have also invoked network economic effects as a justification for widescale regulation of local telephone service. The leaders of the Bell System clearly understood the importance of network economic effects. As it noted in its 1908 Annual report, "A telephone without a connection at the other end of the line is one of the most useless things in the world. Its value depends on the connections with other telephones-and increases with the number of connections" (AT&T 1908, p. 21; see also Bonbright 1961). Indeed, the B