^{Democracy & Technology Blog} Southeast regulatory thicket

George Gilder and I have completed a study of legacy telecommunications regulation in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee. We have previously examined the same types of outdated regulation in Illinois, Indiana, Ohio, Michigan and Wisconsin. In this paper, we update our previous analysis and shift our focus to a different region with its own unique legacy.
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.
A survey of the Southeastern states indicates that significant and harmful vestiges of legacy regulation remain. These include:

• Tariff filing requirements which give rivals detailed information — sometimes in advance — about a competitor’s new or improved products and services. This reduces the incentives for all market participants to improve products and services as the only way to avoid competitive surprises which may cause a loss in sales.
• Requirements to offer similar terms to all customers. These rules prevent incumbents from developing customized offerings to retain valuable customers who contribute to the cost of maintaining service for all. Allowing the market to set prices would spread the benefits of competition in both urban and rural areas.
• Rules which impose 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. These obligations are anticompetitive.
• Hidden subsidies intended to hold some prices at or below cost. These subsidies cannot be maintained in a competitive market where competitors can choose to serve profitable customers and ignore everyone else. Reducing hidden subsidies alone could improve the availability of advanced services in rural areas.
• No constitutional or statutory prohibitions on imposing utility regulation on competitive providers. To the extent a utility commission may attempt 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.
• The absence of restrictions on utility commissions from intervening in the marketplace to promote broadband deployment. Utility commissions have the wrong set of skills for promoting broadband deployment. Removing unnecessary regulation will spur broadband deployment — even in smaller, more rural and economically distressed areas, where the benefits of broadband tend to be largest in terms of higher residential property values and more jobs and businesses in the community.
• Utility commission jurisdiction for consumer protection. This is redundant since the attorney general, commerce department or some other state agency already protect consumers. Redundant jurisdiction can lead to different consumer protection rules according to the type of service or provider. This could have anticompetitive implications.

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.