Policy Documents

Legislators Guide to the Issues: Telecom Deregulation

Bill Peacock –
September 13, 2010

For most of the last century, cheap and universally available local residential phone service was the primary telecommunications goal of American policymakers. The resulting regulatory regime kept competition at bay in order to maintain an elaborate web of subsidies that supported artificially low local service prices.

In the 1970s, when it became clear to everyone that consumers were demanding services that the regulated system couldn’t deliver, the country began to move into the new era of telecommunications deregulation.

Texas has recently been one step ahead of the rest of the country, passing major telecom reform legislation in both 1995 and 2005. Thanks to the most recent legislation—SB 5— local telephone service for more than 15 million Texans was signifi cantly deregulated as of January 1, 2006. Th is was a major step forward in reducing costs and bringing new technologies and services to millions of Texans.

But there is still room for improvement. Even though service for more than 15 million Texans has been significantly deregulated, some price controls remain in effect. For instance, companies must apply rates evenly across a deregulated market, consistent with pricing flexibility that was available on August 31, 2005. Companies are also subject to price fl oors for all services set at the service’s long-run incremental cost. Finally, they are subject to applicable PUC rules relating to “discriminatory” and “predatory” pricing under Chapter 60 of the Public Utilities Code.

Additionally, the vast majority of Texas phone companies continue to operate in regulated markets serving over 7 million mostly rural Texans. In these areas, companies are subject to price caps, price floors, and/or tariffs.