over first-generation technology; for example, 2G included such advanced digital features as compression, network control techniques, bandwidth conservation measures, and full support for voice mail.
The next generation of wireless technology (so-called 3G technology) promises to add even greater speed, capacity, and services—indeed, one recent report describes 3G as “bringing Internet capabilities to wireless mobile phones.”12 Along the way to 3G, there has also been a good deal of work on 2.5G technologies (e.g., CDMA2000, 1xRTT, and GPRS) to help bridge the fairly large gap between 2G and 3G, as well as to build out the networks and infrastructure required by the newer technologies.
One result of the divestiture of the Bell System, subsequent splits and spin-offs, and the entry of new types of telecommunications services providers was a much more competitive telecommunications industry. The cost—and retail price—of long-distance calls fell rapidly between 1984 (the initial divestiture) and 2004 (when carriers began offering voice over IP service broadly to consumers). Wireless telephony grew rapidly, reaching nearly 208 million accounts in the United States by the end of 2005.13 Broadband access to the Internet became widely available. Cable system operators started introducing their own local telephone services over their new digital, two-way infrastructure. Business data service prices fell steadily as well.
A consequence of increased competition at every level of the telecommunications value chain was that the industry players found themselves operating with tighter margins and lower revenues.
The 1996 Telecommunications Act and subsequent FCC decisions led to a further evolution of the regulatory environment. The impact of these developments on innovation and RD—and on the industry more broadly—has been the subject of much debate. Some caution, for example, that such policies as unbundling and the use of total element long-run incremental costs in the regulation of incumbent local exchange carriers had the effect of dampening investment by the local exchange carriers because competitors could appropriate some of the investment made by the carriers. Others cite significant benefits of these policies to the consumer (reduced prices) and the market (lower barriers to market entry).
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