Unfortunately, this regulatory approach has skewed investment incentives and undermined innovation. Most competitors have shunned investment in facilities of their own, preferring instead simply to resell the incumbents’ network services they obtain at a discount, compliments of regulatory fiat.

In Michigan, for example, most of the telephone service billed by non-incumbent competitors is actually provided by SBC facilities. According to state government data, 90 percent of the lines that non-incumbents billed to their customers in 2003 actually were serviced in whole or in part by an incumbent network, up from 62 percent in 1999.[24]

There also has been a corresponding decline in the proportion of lines served by competitors’ own facilities. In Michigan, local non-incumbents used their own facilities to service a mere 7 percent of their customers in 2003, down from 29 percent in 1999.[25]

This same dynamic is evident across the nation — an outcome that is precisely the opposite of what Congress intended.