Incumbent telecommunications providers are facing significant competitive pressure from the voice over Internet Protocol (voice over IP) services of cable operators and from cellphones. One analysis projects that by 2012 the market share of incumbent telecommunications providers will have dwindled to 51 percent nationwide (in fact, this has already happened in some metropolitan areas).
An opportunity now exists in the market for local phone service for lawmakers to rely on competition instead of regulation to deliver new technologies, improved service quality, choice among providers and ultimately lower prices for consumers. This is a proven approach. Regulatory reform opened the long-distance market to competitors in the early 1980s and eliminated vestiges of utility regulation that inhibited full competition. The average price for a minute of long-distance calling dropped from 15 cents in 1992 to 6 cents in 2006, a decrease of 60 percent. Wireless services were completely deregulated early in the Clinton administration, and the average cost per minute of cellphone use has fallen 85 percent, from 47 cents in 1994 to 6 cents in 2007. Meanwhile, the quality of long distance and wireless services has consistently improved. The same thing can happen with local phone service.
In the past year, competition has pushed down the rates for bundles of Internet, phone and TV service by up to 20 percent, to as low as $80 per month, according to Consumer Reports.
The traditional rationale for utility regulation -- i.e., that fixed landline telephone service is a natural monopoly -- is gone. Lawmakers must face the reality that continued reliance on utility regulation is not only unnecessary but will harm consumers by distorting competition.
Indiana moved confidently into this new competitive era in 2006 by reforming utility regulation which inhibits competition and innovation. Specifically, it provided pricing flexibility and eliminated tariff filing requirements; addressed the problem of cross subsidies by significantly reducing intrastate access charges; barred possible utility regulation of competitive voice over IP and wireless services; and it transferred responsibility for consumer protection and promoting broadband deployment from the utility commission to agencies better suited to perform those tasks.
These changes equip telecommunications providers to offer more competitive services and to attract capital to fund broadband expansion, which is the main reason policymakers should undertake regulatory reform. New investment in the telecom sector is necessary if consumers are to receive the services they want at competitive prices. And the states that attract it will also reap the added rewards of job creation and economic growth.
A survey of Southeastern states indicates that significant and harmful vestiges of legacy regulation remain. These include:
Even when pursued in the name of “competition,” legacy regulation restricts service strategy flexibility and creativity needed for real competition in the Internet age. By resisting regulatory reform, legislators will limit customer choice, increase prices, and cripple the broadband expansion necessary to economic growth and technological progress.
This is a moment of truth for Southeastern states facing contraction of traditional sources of employment. By removing the statewide cobwebs of regulations that afflict telecom, they can open up new technological opportunities and economic efficiencies that promise a direct economic stimulus of at least $24 billion throughout the region over the next five years in the form of lower prices for voice services, plus an additional $25 billion in economic impact annually from increased broadband availability and use. By simple reforms of outmoded laws, they can ignite a new spiral of innovation and revival based on new technologies and services tapping into new worldwide webs of glass and light and air.