one operations. It also underlay the structural separation requirements embodied in the first and second Computer Inquiries. Both proceedings implicitly treated local telephone service as if it remained a natural monopoly. Since that time, however, the dramatic drop in the cost of switching has opened even portions of local telephone service to As discussed in Chapter 4, this order was the subject of ongoing litigation. Economic Effects of Regulating Access to Networks competition. At this point, the only portion of the telecommunications network that even plausibly exhibits natural monopoly characteristics is the local loop. Carried to its logical conclusion, this approach would lead to creation of "Loop Cos," in which physical wires connecting central offices to individual residences and businesses would be segregated from switching and other functions associated with local telephone service. Over time, however, policymakers began to recognize that structural separation often exacted some fairly significant costs. As noted in Chapter 4, vertical integration often yields real efficiencies that cannot be realized if regulated businesses are required to be segregated into separate companies. As a result, the FCC initiated a third Computer Inquiry, which amended the rules to allow major local telephone companies to avoid being subject to the structural separation requirement SO long as they made every element of their networks available to any enhanced service provider on an unbundled basis. Unbundled access rates under the third Computer Inquiry were based on historical cost. A similar approach was embodied in the UNE access provision of the 1996 Act, which requires ILECs to provide access to all of their network elements on an unbundled basis at any technically feasible point. In determining which network elements would be subject to the UNE access requirement, the statute required the FCC to consider whether "access to such network elements as are proprietary in nature is necessary" and whether "the failure to p