Telephone (de)regulation is up for discussion these days. I put the “de” in parentheses because deregulation bills, particularly with respect to utilities, are almost universally reregulation provisions. It’s not usually a matter of creating an unfettered marketplace. It’s usually a matter of rearranging who gets to do what to whom and under what circumstances. (The nature of all legislation, really.) The Indy Star has an article entitled Phone deregulation spurs debate.
Triggering the debate is SB 245. I have not yet read the bill, though I intend to. Whether it’s written such that I can understand what it’s doing is another question entirely. The Indiana Law Blog has some coverage today and links to a column by Lesley Stedman Weidenbrenner of the Louisville Courier Journal.
Without letting pesky “facts” and “details” cloud my vision, I’ll hazard a few general thoughts. First of all, utilities were regulated way back when for a reason. It was not done on a whim. First of all, these are services that the legislature decided most citizens pretty much ought to have. And by “utility” I have in mind electricity, water, sanitation, and basic telephone service. Second, these services tend to be thought of as “natural monopolies.” My understanding of why they are natural monopolies is because 1) they are pretty much necessities of life; and 2) they require a physical connection from one’s house to a network. Technology may have mitigated the natural monopoly status somewhat in the case of telecommunications, but that is not entirely certain. Third, pre-regulation utilities were known to abuse their superior bargaining position.
Keeping those factors in mind, if the General Assembly is determined to go on a deregulation adventure, I think it is critical that it keep the established providers of basic telephone service on a short leash until their competitors have advanced to the point where switching providers of basic telephone service is as easy as switching laundry detergent. In addition, legislators need to wrestle with the issue of subsidies. In my opinion, the issue of subsidies is where deregulating utilities runs off the tracks. The legislature has to consider not just ongoing subsidies, but ongoing subsidies.
The historical subsidies are the ones where telephone companies were given a monopoly such that they have had decades to build up their plant, networks, rights of way, pipes into the customers home, and other infrastructure that gives them an almost insurmountable leg up in terms of providing basic telephone service and the ability to leverage that advantage when providing more advanced communications services.
The ongoing subsidies are the ones where, presumably, the legislature will continue to mandate that more difficult to serve areas be subsidized so that residents can continue to get cheap phone service. Rural areas come to mind primarily — if nothing else, you have to string more wire (or other infrastructure) per person simply because rural areas are, by definition more sparsely populated. This kind of subsidy can, once again, be leveraged to give the recipient telecommunications company a leg up in providing other kinds of services or services in other areas. (Or, it can work to their disadvantage if, for example, certain companies are required to provide services to these areas without being somehow compensated for the extra expense.)
So, as I see it, if the legislature is determined to pursue (de)regulation, it has to keep existing providers in check long enough to allow competitors to become competitive. And, it has to somehow neutralize the subsidy problem. I’m not sure, however, that deregulation is necessary. I live in the small town of Monticello and my access to telecommunications services is pretty good. Plain old telephone service, DSL, cable internet, and cell phones are all available in this town of (I think) 6,000. The Indy Star article cites 4 other states that pursued telephone deregulation:
Arkansas, Massachusetts, Nebraska and Utah all saw basic residential phone rates rise from 1993 to 2004, according to a survey of sample cities by the Federal Communications Commission. Meanwhile, Indiana’s basic regulated phone rates remained flat.
And, we have the cautionary tale of California which pursued electricity deregulation based on the promise of lower electric bills. Instead, they got rolling blackouts and cheated out of vast sums of money by the likes of Enron. With that sort of scandal as a distinct possibility, my preliminary advice to legislators is to take an “if it ain’t broke, don’t fix it” approach. Unless, of course, Governor Daniels wants to go the way of former California Governor Gray Davis who was ousted in a special election in large part in the wake of the electric deregulation/rolling blackout turmoil.
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