My colleague George Gilder and I have completed a paper, entitled “More Broadband, Increased Choice and Lower Prices Begin With Regulatory Reform.” We examine various shortcomings in telecom regulation in Illinois, Michigan, Ohio and Wisconsin as a result of robust competition. We explain why regulation and competition don’t mix, and offer legislators specific ideas for regulatory reform.
The above chart, which appears in the paper, projects the growth in competition from cell phones and Internet Protocol-enabled voice services provided by cable operators. The curve is in the shape of a hockey stick.
Phone competition from cable operators took off beginning in 2004 as a result of the FCC scaling back its wholesale competition rules. Those changes prompted phone companies to enter the video market dominated by cable operators, who in turn accelerated their entry into the voice market dominated by incumbent phone companies.
When the 1996 law passed, several cable operators planned to offer competitive phone services in a venture that included Sprint Corp. But according to Sprint CEO William T. Esrey, the plans were dropped because of the FCC’s “pro-competition” policies: “If we provided telephony service over cable, we recognized that they would have to make it available to competitors.” Thus, the local competition rules which were intended to speed effective competition actually delayed it.
Consumers also began substituting cell phones for fixed line service in greater numbers beginning in approximately 2004. During the Clinton administration, additional spectrum was auctioned for cell phone services and state regulation was preempted. Service quality steadily improved and prices steadily dropped, both as a result of these policies and technological innovation. Cell phone service — which was once expensive and unreliable — is increasingly becomming a compelling alternative to fixed line phone service. Also, at the end of 2003 the FCC mandated wireline-to-wireless number portablility — enabling you to cancel your fixed line phone service and transfer your wireline phone number to a cell phone.
The point is that it is time to reform telecom regulation. The phone company which Lily Tomlin (“Ernestine”) lampooned (e.g., “We’re the phone company; we’re omnipotent.”) on Rowan & Martin’s Laugh-In program that aired on NBC from 1968 to 1973 no longer exists.