Recent regulatory changes affecting the provision of telecommunication
network services are reviewed. These changes have led to substantially increased
competition in the telecommunications industry, especially in the provision
of long-distance telephone services. A variety of explanations accounting for
the dramatic increase in network services are examined, along with the pricing
principles that have been used by the telecommunications industry. A fundamental
pricing principle has been the subsidization of local residential services by
long-distance services and local network services to business customers. Residential
service subsidies have been eroded by competition in long-distance markets and
may be further jeopardized as local networks face increased competition from
new entrants. In this new competitive environment, policymakers must: 1. assess
the need for continuing regulation of telecommunications services, 2. determine
permissible pricing policies, and 3. seek the preservation of residential service
subsidies.