One of the most important public policy questions in the enactment of the U.S. Communication Act of 1996 was whether to allow competition in the local and regional telephone markets. While competition in the long distance telephone market, introduced in the 1960s, is flourishing, local telephone companies, including Baby Bells, still maintain their monopoly position, but rapid technological advances in telecommunications are eroding the established market structure. From the viewpoint of economies, the transition to competitive local and regional telephone markets may be justified only if local telephone companies are not natural monopolies, and if local telephone companies' productivity growth is poorer than that of their competitors. This study presents new pro-competitive evidence on the cost structure of local and regional telephone markets and shows a markedly faster growth in productivity of a competitive long distance telephone company than of local telephone monopolies. This book presents two types of analyses: measurement of total factor productivity (TFP) growth, and the estimation of various cost functions. By considering competitiveness in both analyses, the effect of competition on cost decline or productivity growth is traced, and the relationship between competition and natural monopoly is examined. The author also revives arguments for embodied technical change, which have been ignored in economic literature for a decade.