Study Cites Need for Regulatory Reform to Promote Broadband, Consumer Choice and Lower Prices for Telecommunications Services

Washington, D.C. – Now that most consumers can choose phone service from a cable, wireless or wireline provider it is time for policymakers to rethink comprehensive regulation of incumbent phone companies, according to a report released today by the Discovery Institute. Comprehensive regulation is unnecessary to ensure quality service at reasonable rates. More importantly, it inhibits competition which can deliver more broadband, increased choice and ultimately lower prices for consumers.

The report notes that potent competition from wireless and VoIP providers mean that millions of consumers have become virtual regulators. Meanwhile, competition and regulation are incompatible. Consumers will not win in the marketplace if legacy regulations do not fall away.

“Utility regulation was justified when fixed landline telephone service was a natural monopoly,” according to Hance Haney, a senior fellow at the Discovery Institute and a co-author of the report. “But the monopoly is gone and utility regulation deprives consumers of the benefits of vigorous competition.”

The report, coauthored by Haney and George Gilder, also a senior fellow at the Discovery Institute, identifies several features of traditional utility regulation which inhibit competition.

“This is a moment of truth for Midwest states facing contraction of their traditional manufacturing industries,” said Gilder. “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.”

The report recommends that policymakers address the following shortcomings in utility regulation:

• Hidden subsidies intended to hold some prices at or below cost cannot be maintained in a competitive market, where competitors can choose to serve profitable customers and ignore everyone else.
• Tariff filing requirements ensure that rivals will always have advance notice of an incumbent’s intentions and need not offer the best value proposition every day to avoid losing sales.
• Requirements to offer similar terms to all customers prevents incumbents from developing customized offerings, such as volume and term discounts necessary to retain customers.
• To the extent a utility commission may seek to assert jurisdiction to regulate competitive services it is a target for commercial rivals seeking a regulatory advantage, activists seeking to promote a policy agenda or even a formerly regulated entity seeking protection.
• Regulation which imposes costs on some providers but not others – such as the requirement to act as a provider of last resort where the market is competitive and consumers can choose between multiple providers – is anticompetitive.
• Utility commission jurisdiction for broadband deployment risks reliance on unnecessary and inefficient subsidies and overlooks the more valuable role that state economic development and education departments can play in promoting broadband deployment.
• Utility commission jurisdiction for consumer protection is redundant and can lead different consumer protection rules according to the type of service or provider.

The authors claim that minimal regulation leads to investment and innovation. Studies show that broadband access and adoption could lead to millions of new jobs every year and other consumer benefits.

To read “More Broadband, Increased Choice and Lower Prices Begin With Regulatory Reform,” click here.

About the Technology & Democracy Project at the Discovery Institute:

Discovery Institute’s Technology and Democracy Project (http://www.discovery.org/technology/) provides expert analysis and commentary on technology and public policy issues. Led by program founder and renowned author George Gilder, the TDP is recognized as a national and international voice for free enterprise in the technology sector.

About the authors:

Hance Haney is Director and a senior fellow of the Technology & Democracy Project at the Discovery Institute. He advised the chairman of the Subcommittee on Communications of the United States Senate during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association, U S WEST, Inc. and Qwest Communications.

George Gilder is a senior fellow at the Discovery Institute and the founder of Discovery’s Technology & Democracy Project. He is also chairman of George Gilder Fund Management, LLC and moderator of the Gilder Telecosm Forum. His best-selling book, Microcosm (1989), explored the quantum roots of new electronic technologies. A subsequent book, Life After Television (1990), was a prophecy of the future of computers and telecommunications and a prelude to his book on the future of telecommunications, Telecosm (2000).