Forecasting competitive behavior: An Assessment of AT&T’s incentive to extend its U.S. network

Competitive analysis is used to forecast how, where and when AT&T will integrate backward into the production of its own local access. By using a net present value framework to model AT&T’s decision on whether to create additional capacity for collecting and distributing its long-distance traffic, a realistic assessment of the scope and timing of such action is achieved. Thus, a technique outside the usual class of those used in U.S. telecommunications demand forecasting is applied. The effects of two local exchange company rate structures for switched access are compared. Revenue at risk to a local exchange company totaled approximately $267 million for rates in effect, as compared to $100 million under a flattened rate structure.