Wisconsin Telecom Policy Needs Update

Regulation hampers ability of telecom providers to create and maintain jobs and opportunity in Wisconsin
Hance Haney & George Gilder
Wired Wisconsin
November 30, 2010
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SUMMARY

In 1994 the Legislature revised Wisconsin’s telecommunications law to permit and encourage competition as a catalyst for delivering new technologies, improved service quality and choice among telecommunications providers and ultimately lower prices for consumers.

Although the 1994 act opened the market to competitive entry, it contains significant vestiges of legacy regulation that are no longer necessary to protect consumers. They also are having the unintended effect of preventing full competition which is necessary to stimulate the deployment of new technologies. By advantaging some providers and disadvantaging others, legacy regulation acts as a restraint on competition. Ensuring that consumers reap the full benefits of competition will require the Legislature to revise Wisconsin’s telecommunications law once again to remove these legacy restraints.

In Wisconsin there remain several harmful vestiges of legacy regulation.

  • Pricing regulation, including hidden crosssubsidies, makes it unprofitable to serve many consumers. Pricing regulation cannot be maintained in a competitive market, where service providers can choose to serve profitable customers and ignore everyone else. Full pricing freedom should be allowed, and inflated intrastate access charges should be reduced.
  • Filing requirements give rivals detailed information about a competitor’s new or improved services or products. These requirements should be eliminated.
  • Public Service Commission jurisdiction to act on consumer complaints can lead to inconsistent enforcement with anticompetitive consequences. PSC jurisdiction should be eliminated and consumer complaints should be handled solely within the Department of Justice's Office of Consumer Protection and/or the Department of Agriculture, Trade, and Consumer Protection.
  • Service quality regulation applies only to legacy technology and results in unequal regulatory burden and skews incentives for investment. Service quality regulation – which is also largely ineffectual – should be eliminated.
  • Obligations to serve, usually referred to as provider-of-last-resort, impose costs on some providers but not others and are anticompetitive wherever consumers can choose between multiple providers. These obligations should be eliminated wherever there is competition.

Wisconsin’s’ neighbors are taking important steps to update the regulatory climate. Indiana, Illinois, Michigan and Ohio have all recently updated their telecom statutes.

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

By simple reforms of outdated laws, Wisconsin 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. Less than 30 percent of Wisconsin lines are served by incumbent local exchange carriers subject to legacy utility regulation.

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.

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

Broadband offers new opportunities to get a job or start a business. It is most valuable where other 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 $2.2 billion over five years in the form of lower prices for voice services, according to one estimate. According to a report by Connected Nation, Wisconsin would also experience an additional $2.6 billion in economic impact annually from increased broadband availability and use – including an estimated 50,748 jobs created or saved per year throughout the state’s economy.

Telephone companies, cable operators, wireless providers and others are all competing to be the market leader 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, Wisconsin can eliminate the possibility that investment will flow to another state with a lower risk profile.