Illinois’ Incomplete Telecom Report Card

Remnant telecom regulation threatens jobs and opportunity in Illinois
Hance Haney & George Gilder
Illinois Technology Partnership
March 17, 2010
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SUMMARY

In 1985, the Illinois General Assembly declared that “competition should be pursued as a substitute for regulation,” delivering new technologies, improved service quality, choice among telecommunications providers and ultimately lower prices for consumers.

The goal of the 1985 act, which was to open the market to competition, has been achieved, but not the task of ensuring that consumers will reap the full benefits of competition – which requires eliminating legacy regulation that is no longer necessary to protect consumers, harms competition and that limits the deployment of new technologies by advantaging some providers and disadvantaging others.

By simple reforms of outdated laws, Illinois can ignite a spiral of innovation and revival based on new technologies and services.

Gone is the traditional rationale for utility regulation – i.e., that fixed landline telephone service is a natural monopoly. Between cable and wireline telephone companies, competition pushed down the rates for bundles of Internet, phone and TV service by up to 20 percent in 2008, to as low as $80 per month, according to Consumer Reports.

Continued rulemaking by state public utility commissions is not only unnecessary but, by distorting competition, harms consumers and limits deployment of new technologies. Even when pursued in the name of “competition,” legacy regulation restricts service strategy flexibility and creativity needed for real competition in the Internet age.

In Illinois remain several harmful vestiges of legacy regulation, including:

  • Pricing regulation, including hidden cross‐subsidies, that makes it unprofitable to serve many, if not most consumers. Pricing regulation cannot be maintained in a competitive market, where service
  • Filing requirements that give rivals detailed information about a competitor’s new or improved services or products.
  • Utility commission jurisdiction to act on consumer complaints that can lead to inconsistent enforcement with anticompetitive consequences.
  • Service quality regulation applied only to legacy technology that results in unequal regulatory burden and skews incentives for investment.
  • Obligations to serve, usually referred to as provider‐of‐last‐resort, which impose costs on some providers but not others and are anticompetitive wherever consumers can choose between multiple providers.

Illinois’ neighbors are taking important steps to update the regulatory climate. Indiana, Michigan and Missouri have updated their telecom statutes, and Ohio and Wisconsin are in the process of updating theirs.

Meanwhile, Illinois’ telecommunications providers remain subject to unnecessary and anticompetitive regulation which depresses industry valuations and thus investment.

This is a moment of truth for Illinois. Broadband is not yet ubiquitous, particularly in disadvantaged communities and remote areas. Yet every Illinois resident should have access to broadband.

Broadband offers new opportunities to get a job or start a business. It is most valuable where opportunities for wealth creation are least available, such as in disadvantaged communities and rural areas.

The state can open up new technological opportunities and economic efficiencies that promise a direct private market economic stimulus of at least $4.6 billion over five years in the form of lower prices for voice services, according to one estimate. According to a report by Connected Nation, Illinois would also experience an additional $6.2 billion in economic impact annually from increased broadband availability and use – including an estimated 105,622 jobs created or saved per year throughout the state’s economy.

The jobs created or saved are not only in the telecommunications equipment and services, but also in manufacturing and service industries (especially finance, education and health care).

Telephone companies, cable operators, wireless providers and others are all competing to be #1 in broadband, and each firm is anxious to invest whatever it takes. But first investors must provide the funding. They will decide which, if any, firms can buy the necessary equipment and employ the highly‐skilled people who can make it all work.

From a state perspective, regulation is the most critical factor affecting private investment in broadband. By removing the statewide cobwebs of regulations that afflict telecom, Illinois can eliminate the possibility that investment will flow to another state with a lower risk profile.