A market test for natural monopoly in local exchange

Is the incumbent local exchange carrier (LEC) a natural monopolist? The analysis indicates that the LEC cost function is not supportable: LECs appear to be either nonsustainable natural monopolies or non natural monopolies over the set of services they currently offer. However, recent technological changes suggest that whether LECs are natural monopolies over their current offerings is immaterial for policy making, because competitors are enjoying economies of scope in offering both LEC and non LEC services. Based on these results, deregulation of LECs is discussed in a Type I/Type II error framework.