Public policy and entrepreneurship: The development of the competitive local telephone service industry

In this dissertation, I examine how political environments influence industry structure and entrepreneurial opportunities following deregulation. Though deregulation implies a removal of government control, I propose that deregulation remains a political process that is shaped by previous regulations and by the state actors responsible for implementing and overseeing deregulation. I test my claims by studying the competitive local telephone service industry, which was created by the federal Telecommunications Act of 1996. Regulators within state governments had historically played a large role in governing the industry and continued to oversee and implement the federal deregulatory policy. I studied the growth of competitive local exchange carriers (CLECs) at two different levels of analysis: the state and the firm. At the state-level, I examined CLEC founding rates between 1997 and 2006. I find that states with more experience with incentive-based regulation had higher founding rates and that this effect attenuated with time. Founding rates were also higher for states with new governors throughout the study and for states with new commissioners early in the study period. At the firm-level, I examined expansion decisions made by CLECs between 1997 and 2005. I find that early in the study period, CLECs were more likely to enter states that were similar to their founding state on dimensions of the political ideology of its electorate and that employed the same type of local telephone regulation in 1996. New governors and a regulatory commission with relatively recent turnover also made certain states more attractive expansion targets. Finally, states exhibited a strong tendency to grow within the boundaries of the dominant incumbent carriers' territories. In many respects, this effect was as strong as the effect of adjacency. Thus, even after one policy has been preempted by a second policy, effects from the first policy remain. Together, the studies support my argument that a state's current policy is built upon its previous policies and that changes in political leadership can serve as punctuating moments that stimulate competition and industry development. This dissertation provides a basis upon which future research on the relationship between political environments and entrepreneurship can build.