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Democracy & Technology Blog Objections to NC telecom rewrite unpersuasive

In North Carolina, the Utilities Commission Public Staff (an independent agency which represents consumers before the Utilities Commission) sent legislators an email objecting to legislation which would update the state’s antiquated telecommunications law. The email contained the following arguments:

  • CURRENT LAW ALLOWS LOCAL EXCHANGE COMPANIES AMPLE FLEXIBILITY TO COMPETE WITH CABLE AND WIRELESS.
  • UNDER THE PROPOSED LEGISLATION, THE COMMISSION WILL NO LONGER BE ABLE TO ENSURE THE AFFORDABILITY OF BASIC LOCAL SERVICE OR ADEQUACY OF SERVICE QUALITY, OR HANDLE COMPLAINTS FOR CONSUMERS ABOUT BILLING OR SERVICE.

The first argument is misleading — although it is true there is some flexibility, it certainly isn’t adequate (let alone ample).
The second argument is technically correct in some respects but is utterly beside the point.
Telecommunications was a monopoly up until the 1980s or so. Today, cable phone service is available to over 100 million homes nationally. Comcast, a cable provider, is the nation’s third largest provider of telephone service.
There are now far more cellphones in service (249.2 million) as compared to traditional land lines (158.4 million). In the South, 19.6 percent of adults are living in households with only wireless telephones, according to a study by the National Centers for Disease Control. In these tough economic times, many consumers are dropping their regulated land line service in favor of unregulated wireless offerings which offer mobility and, arguably, greater flexibility and better value.
Don’t hesitate to check out a paper I coauthored with George Gilder, which includes references and further analysis.
Current law in North Carolina does provide more flexibility for telecommunications providers to set prices and offer promotions or new services than in the past. But providers are still regulated, and still have to to get Utilities Commission approval when they want — or are forced by competition — to modify their business plans. This makes no sense in a competitive industry.
What other competitive enterprise who seeks to set prices or terms or offer services has to contend with lengthy notice and comment at a government agency with full opportunities for its competitors to participate and appeal?
Normally, full procedural safeguards are a good thing. But competition in the telecommunications market is here. The market is one of the most competitive arenas in the global economy. Lengthy government procedure favors competitors and inappropriately harms incumbents. And, yes, consumers suffer the consequences.
Disclosure by the incumbent — and an opportunity for competitors to obtain sensitive data and lobby the regulator — means that rivals never have to worry about losing sales because they failed to anticipate a promotional offering or the introduction of a new or improved product or service; a lower price and/or better terms by a competitor. Rivals can wait until they receive formal notice of a competitor’s intentions before they lower the price or improve the quality of their own product or service as necessary to avoid losing sales. Or they can even delay it as a result of a timely objection before the Utilities Commission. This can become a dangerous game (for consumers), which reduces the incentives both for the incumbent and the rival to innovate.
As to the Commission’s argument that it will no longer be able to ensure the affordability of basic local service or adequacy of service quality: The fact is that a commission is no longer necessary to ensure these things. The availability of voice over Internet and wireless offerings for the vast majority of consumers means that most consumers are now “virtual regulators.” By that I mean most consumers can switch providers if they are dissatisfied with the price or quality of service they are currently receiving. When a provider loses customers because it isn’t offering a competitive value proposition, it either has to lower its prices or improve its services to avoid losing sales.
Public utility commissions are no longer necessary to protect the vast majority of consumers, who can choose between competing services. This means that commissions can be eliminated entirely (at least for these consumers), freeing scarce public resources for higher prioritiies.
What about rural Americans — who comprise, perhaps, 5 to 10 percent of telecommunications users — who do not or will not have competitive options?
Although this is a subject for a separate blog post, competition has been slow to develop in rural areas in large part because current regulation sets prices below costs, thus depriving investors in competitive service offerings of a profit.
The solution to this problem is not to retain a Utilities Commission to regulate the telecommunications services available to rural consumers. The solution is to remove the disincentives to investment in rural areas. This can be done without unduly harming residents in rural areas where well-paying jobs are less common.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.