^{Democracy & Technology Blog} Hoosier legislators moving forward as its regulators drift backward

Last Friday the Indiana Utility Regulatory Commission issued a ruling, following more than two years of study, describing the competitive landscape of telecom in the state and modifying rules for both incumbent and competitive service providers. The Commission’s broad stated goal for the ruling was “regulatory parity.” But the kind of parity it delivered serves the interests of only one group: the regulators themselves. After mildly lowering some of the price floors currently imposed on Indiana’s incumbent telecom companies, the Commission then inexplicably imposed those same price floors and cost reporting requirements on the previously unregulated competitive carriers, the CLECs.
Clearly imposing price floors across the entire industry does not help consumers. Isn’t the theory that competition is supposed to produce the lowest possible prices for users of communications services? Price floors make sure that at least some prices will be higher than what the market would bear.
Price floors and new reporting requirements clearly do not help the CLECs. The competitive carriers have gained huge advantages through several artificial pricing schemes imposed on the incumbents — the previously incumbent-only price floors, for one, and also below-market lease prices on access to the incumbent networks. Forcing the CLECs to charge higher rates than they would like eliminates one of their key advantages, as artificial and pernicious as that advantage was in the first place. The new reporting requirements also impose new costs and hassles on the CLECs.
The new “parity” might in theory help the incumbents — in Indiana, that’s AT&T, Verizon, and numerous smaller ILECs — in the short term. The CLECs no longer will have a free shot without any fear that incumbents can match their prices. But these new regulations cannot be good overall for the incumbents. The IURC has shown it is willing to re-regulate parts of the industry even as the industry becomes more competitive. It is expanding the use of out-dated utility pricing models when such models should instead be far along the road to phase-out or elimination. And with this out-of-left-field decision, it feeds worries that the regulatory climate is arbitrary and uncertain. If the IURC is willing to issue such a silly, backward order in this area, what might it do next? This kind of “parity” does not give the incumbent Bells any assurance that the hundreds of millions or billions of dollars they want to spend on advanced new optical networks will be safe from future IURC mischief.
Lots of us have argued for “regulatory parity” for many years. But a key principle in this dynamic market is that any parity should be achieved by deregulating down to the lowest level of regulation. Most definitely not by re-regulating up to the most regulated entities. That’s what the IURC has done here.
A possible silver lining in this head-scratching decision is that the regulators might have just created a new constituency for broad-based telecom reform legislation. Several bold Indiana legislators like State Sen. Brandt Hershman are already gearing up for an aggressive pro-growth, pro-broadband reform in the 2006 legislative session. The office of Governor Mitch Daniels has been intensely exploring far-reaching reform options. Now, by sticking it to the CLECs, the IURC may have just mitigated the objections of one of the groups that would have most aggressively opposed real telecom deregulation. If the IURC can impose the same hefty burdens on the small competitors as on the large incumbents, the CLECs may start asking what the IURC is good for anyway.
-Bret Swanson