We have completed a new paper examining the need for regulatory reform in Illinois for the Illinois Technology Partnership. Illinois was one of the first states to take the first step in permitting competition in the local telephone market. But it failed finish the job.
In 1985, the Illinois General Assembly declared that “competition should be pursued as a substitute for regulation,” delivering new technologies, improved service quality, choice among telecommunications providers and ultimately lower prices for consumers.
The goal of the 1985 act, which was to open the market to competition, has been achieved, but not the task of ensuring that consumers will reap the full benefits of competition — which requires eliminating legacy regulation that is no longer necessary to protect consumers, harms competition and that limits the deployment of new technologies by advantaging some providers and disadvantaging others.
Meanwhile, Illinois’ neighbors have been busy improving the regulatory climate. Indiana, Michigan and Missouri have updated their telecom statutes, and Ohio and Wisconsin are in the process of updating theirs.
We point out that broadband investment is expected to yield significant benefits, and caution that these benefits are at risk if legacy telepone regulation is not reformed. The predicted benefits are:
The state can open up new technological opportunities and economic efficiencies that promise a direct private market economic stimulus of at least $4.6 billion over five years in the form of lower prices for voice services, according to one estimate. According to a report by Connected Nation, Illinois would also experience an additional $6.2 billion in economic impact annually from increased broadband availability and use — including an estimated 105,622 jobs created or saved per year throughout the state’s economy.
The often overlooked risk is that telephone companies, cable operators, wireless providers and others are all competing to be #1 in broadband, and each firm is anxious to invest whatever it takes. But first investors must provide the funding. They will decide which, if any, firms can buy the necessary equipment and employ the highly-skilled people who can make it all work.
Investors are sensitive to potential risks and rewards. Vigorous competition, rapidly changing technology and regulation are the principal risks for any investor in broadband. Of all the risks, regulation is the most critical from a state perspective. All things being equal, if Illinois is highly regulatory and Indiana is not, a firm can lower its risk profile by investing more in Indiana and less in Illinois. Thus, if Illinois clings to the past, it risks diverting investment to more dynamic states like Indiana.