 is a daunting task unless the entrant can offer an array of new services. For this reason, the 1996 act included a requirement for unbundling incumbent facilities and providing them at wholesale "cost-based" rates to entrants. These rates are established through state-by-state arbitration and regulation and have been the subject of endless controversy since the act was passed. Despite the FCC's prescription that these rates be based on forward-looking, total- element, long-run incremental cost (TELRIC), the actual rates vary enor- mously across the states. For example, the rate for leasing the subscriber line in the areas of greatest population density in Illinois was just $2.59 to $7.07 a month in early 2002, but it was more than $15 in such areas in eleven other states. 12 TELRIC prices are supposed to be based on the cost of building new facilities and amortizing them over their full economic life, but entrants are allowed to lease the incumbents' facilities at these rates on a month-to- month basis. Therefore for facilities that are irretrievably "sunk," entrants are provided with a free option because they do not have to incur the risk that the incumbent faces from technological obsolescence or other forces that could strand such an investment. ¹³ The requirement for network unbundling can be defended on grounds similar to those just advanced for resale. Building network facilities to con- nect all of an entrant's customers can be extremely expensive and time- consuming. An entrant could begin by investing in local switching and interoffice transport capacity but use the incumbents' local loops to con- Local Competition under the 1996 Act nect its customers to its own switches until it has enough of them to jus- tify building its own distribution lines in densely populated areas. Doing SO may never be warranted in the less densely populated areas if the entrant is using a technology based on terrestrial wires or cables. In these latter areas, it may almost always be necessary to rely on unbundled loops or r