Deregulation Won’t End Universal Service or Lifeline

Published May 24, 2004

In March, the Texas state legislature became the latest to hold sunset hearings on public utility commission (PUC) regulation of telecommunications service providers. One hopes legislators will conclude bold deregulation is the right thing to do.

Deregulation delivers lower prices and a wider range of goods and services to consumers. In unregulated parts of the telecom industry, competition has already pushed prices downward. Deregulating other parts of the industry would also bring lower prices to consumers.

Similarly, product innovation is more rapid in deregulated industries. This is perhaps nowhere more evident than in telecommunications, where technology regularly fathers new products and services–for example, a telephone that doubles as a PDA, or as a digital camera, or as both.

But telecom deregulation also raises questions about social objectives other than lower prices and more consumer choices. Two that deserve attention are universal service and subsidized or free service to the needy, sometimes called lifeline service.

Roughly 95 percent of households now have access to basic local phone service. Of the remaining 5 percent, a significant portion is in areas–wilderness areas, for example–where the need hasn’t been demonstrated and costs would be extremely high. Another portion consists of people who for whatever reasons do not want to be connected to the national communication grid.

Frankly, the goal of universal service has been achieved. Universal service will continue into the future, but new technology will take the place of traditional dialtone service. Cellular technology, satellite technology, broadband advances, and personal communications networks will be universally available.

What about lifeline service?

Governments have a history of overestimating how many people would actually be interested in reduced or subsidized telecom service offerings. For example, in Arizona in the mid-1980s, a lifeline telephone service the state estimated would attract 77,000 households never had more than 2,900 participants.

Texans may believe it is a legitimate priority of state government to provide communications service for free or at a subsidized rate to some means-tested group of citizens. If this is the case, the most efficient and effective way to accomplish this goal is via social service and welfare agencies, not regulatory actions. The state could purchase service from a select group of communications carriers, be they wireline or cellular or other, and offer that to the means-tested participants.

Leadership Opportunity

Texas has the opportunity to take a leadership role in national telecommunications policy development. A legislative program of broad deregulation of telecommunications, by narrowly defining the regulatory role of the PUC, would benefit the state and its consumers.

Market forces, not pervasive regulation, should govern entry and exit into markets, transmission and distribution of services, and pricing. Deregulation is in the best interest of ILECs, CLECs, wireless providers, and ISPs who aim to provide quality service, technological innovation, and competitive pricing to their customers, return on equity to their investors, and new jobs for Texas.

Barry Aarons ([email protected]) is research fellow with the Institute for Policy Innovation. This essay was excerpted from “Time to Deregulate Wireline Communications”; the full text is available at