Citizens Action Coalition & Telephone Deregulation

I came home from work early yesterday because of some illness or another I’ve picked up and been wrestling with since Friday. So, I was home when a nice young lady acting on behalf of the Citizen’s Action Coalition of Indiana knocked on the door asking for our support in opposing Sen. Hershman’s SB 245 and Rep. Murphy’s HB 1279 which would deregulate local telephone service in Indiana after 2009. The CAC characterizes these bills as “pro-industry telecommunications bills that would allow monopoly telephone companies like AT&T and Verizon to unilaterally raise rates for basic local telephone service.”

An earlier news release from the CAC is dated January 31 and addresses only HB 1279 but it is more detailed and I have no reason to believe that the details of the telephone deregulation bills changed significantly between January 31 and the present. The CAC characterizes the content as follows:

• Effective July 1, 2006, HB 1279 prohibits the Indiana Utility Regulatory Commission (IURC) from exercising jurisdiction over the price, terms and conditions of basic telecommunications service or any provider of basic telecommunications service in an exchange area where broadband services are available to at least 50% of households.

• Although HB 1279 allows the IURC to set service quality standards, it does not require the setting of standards or specify what those standards must include. A telecommunications provider can be fined for violating a service quality standard only if the IURC can show that the provider demonstrated a “willful disregard” for its obligation to comply. This would significantly limit the IURC’s current powers to regulate quality of service.

• As with basic telecommunications service, HB 1279 does not place any limits on rates or quality of service for broadband service, nor does it contain any build-out requirements to ensure that broadband is uniformly available to all customers, including rural households, in an exchange area.

• If an incumbent local exchange carrier continues to offer basic telecommunications service in an exchange area on June 30, 2006, it must offer a flat monthly rate with unlimited local calling for basic telecommunications service. Once again, however, HB 1279 does not place any limits on rates or quality of service for the flat monthly rate.

• HB 1279’s prohibition against local measured service does not prevent an incumbent local exchange carrier from charging unreasonable rates for basic telecommunications service, nor does it prevent a carrier from failing to ensure quality of service.

• HB 1279’s future requirement, that a telecommunications provider notify a residential customer about any regulatory pricing or service quality the customer would forego by switching to non-basic service, falls far short of protecting customers against unreasonably high rates and poor quality of service.

• HB 1279’s increase in eligibility for Indiana’s Lifeline Assistance Program to 150% of the Federal poverty level, while serving more households, does not go far enough in protecting low-income individuals from unreasonable rate increases, nor does it ensure quality of service.

• HB 1279’s video service franchise provisions essentially protect the status quo, making its passage unnecessary to ensure competition in the video market.

• After conducting a formal two-year investigation, the IURC held that the status of competition in the telecommunications industry in Indiana is unclear, particularly due to the recent mega-mergers of SBC/AT&T and Verizon/MCI. The IURC concluded that continued regulation of the telecommu-nications industry is essential, and has opened another investigation into the status of competition.

• Passage of HB 1279 will eliminate the IURC’s jurisdiction to protect consumers from unreasonable rates until such time as meaningful competition exists in the telecommunications market in Indiana.

On the issue of quality, The Indiana Law Blog had a recent entry revisiting the year 2000 where Ameritech apparently had to be goaded in a significant way to get its service quality up to snuff.

Meanwhile, Tracy Warner had a good column (which I found via the Indiana Law Blog) in the Fort Wayne Journal Gazette. A point Mr. Warner raises is that of cable franchises — the Senate Bill has a provision that would take negotiations for cable franchises away from local authorities and place it at the state level. The contention is that localities would still get the franchise fee, but once you put it at the state level, it’s inevitable that the folks at the State House will begin taking in a rake of the proceeds sooner or later.

The huge flaw in the bill as a whole is that it relies on competition for local phone service to keep those rates down in the absence of regulation. There isn’t any significant competition at the moment, particularly for poor people in rural markets. If, as a policy matter, Indiana still wants to guarantee poor citizens who happen to live in rural areas basic telephone service at a low rate, that service will have to be subsidized. Such subsidies will inhibit any real competition, either because the need for subsidies will inhibit new competitors from being interested in the low-profit areas, or because the presence of subsidies provides existing providers with an advantage in other areas. At the very least, the bill should specify standards of what constitutes adequate competition in a market area and, either not deregulate until those standards are met, or provide a date upon which regulation will return if those standards are not met.