a lesser extent, in Asia (see chapter 9). In just two years, the unbounded optimism shifted to gloom and doom. As 2004 dawned, much of the telecom sector remained depressed-the only excep- tion being the wireless sector, which was buoyed by a battle between Voda- fone and Cingular to buy AT&T Wireless." Output and Revenue Growth Surprisingly, telecom output and revenues did not accelerate very much in the late 1990s, despite the surge in investment, Internet explosion, and strong economic growth. Between 1987 and 1995, the growth in nominal telecom output ("gross domestic product") and in capital spending was virtually identical. 10 After 1995 the industry's output (as measured by gross product) accelerated only slightly in nominal dollars, rising from a 4.6 per- cent annual growth rate during 1987-95 to just 6 percent from 1995 to The First Eight Years under the New Law Figure 3-2. Telecom Company Stock Prices, 1996-2004 Index, February 1996 = 100 1,000 CLECs Wireless Long-distance companies Bell companies Source: Author's calculations from closing prices on www.finance.yahoo.com. 2000, investment increased by nearly 19 percent per year after 1995 (fig- ure 3-3). The growth in telecom output was unexpectedly modest, given that real gross domestic product (GDP) grew at an average annual rate of 4 percent during this period; it was also far below the growth in nominal capital spending. 11 Indeed, the value of telecommunications output in nominal dollars rose more slowly than did durable-goods manufacturing in the late 1990s. 12 Virtually all of the recent growth in telecommunications services output and revenues has come from the wireless sector. As figure 3-4 shows, total revenues of the local exchange companies and long-distance carriers have been static since 1996. End-user wireline revenues even decreased by about $2 billion, dropping from $151.5 billion in 1996 to $149.2 billion in 2003, despite the phenomenal growth of the Internet.¹3 In real inflation- adjusted terms, these figures indicate a decline of abo