Indiana Needs to Deregulate Now

Published March 1, 2006

The Indiana General Assembly has correctly placed Senate Bill 245, which will dramatically reshape telecommunications regulation in the state, on the fast track.

In early February, SB 245 passed the Indiana Senate 40-6. The companion House bill, which does not include the franchise fee provision, HB 1279, passed 85-14. Gov. Mitch Daniels is pushing for passage this spring.

Although critics say the bill, sponsored by Sen. Brandt Hershman, protects incumbent telephone companies and does little for consumers, the opposite is true. The bill will eliminate many monopoly-era regulations that artificially sustain and protect older and obsolete services against competition from new technologies, including wireless and voice over Internet Protocol (VoIP). Across the country, millions of consumers are choosing these new technologies for reasons of economy, robustness, or lifestyle. Indiana lags the nation in its rate of adoption of wireless services and broadband connections, simply because the regulatory climate has not nurtured their growth.

Deregulation will lower barriers to entry and investment for competitors. Indiana consumers will benefit because new and existing providers will have new incentives to experiment and succeed with delivery of a wireless and broadband value proposition.

Passage of this bill would unleash true “intermodal” competition: Phone, cable, wireless, and Internet providers would compete for the same consumer dollars in phone, Internet, and entertainment. Yet each segment would have the freedom to leverage its respective assets and strengths. This is distinct from past attempts to “manage” competition through bureaucratic rules that all but forced players to mimic one another while limiting service bundling, partnerships, and the marketing flexibility that leads to value and differentiation.

Fast-Track Franchising

In keeping with this spirit, the bill puts cable competition on a fast track by elevating video franchising authority to the Indiana Public Utility Commission. To see the payoff of this change, all Hoosiers need do is look at Texas, where a similar franchise reform bill passed in August with great popular support. Already, Verizon has launched competitive video services in six communities in the Dallas-Ft. Worth area and plans to have its new fiber-to-the-home network pass more than 400,000 homes in the area later this year.

Hershman’s bill also would prohibit Indiana municipalities, except under certain specific conditions, from owning and operating broadband systems. Taxpayer-funded municipal broadband is an appealing concept to some, but it has largely failed in all but the smallest communities. When municipal networks don’t fail, they tend to stall, placing a town in broadband limbo.

In Indiana, for example, Crawfordsville has been floating a municipal broadband proposal since 2004. It still has not attracted funding on the interest terms it wants because of the risk of the venture. Meanwhile, the prospect that the town may enter the market as a competitor keeps private broadband investment on hold because no enterprise wants to risk the possibility of competing against an entity that can draw funds from a captive tax base.

After assessing the cost, Anaheim, Minneapolis, and Philadelphia–all of which had originally proposed city-owned broadband systems–elected to go with commercial providers who will finance, build, and own the networks at no taxpayer expense. The Indiana General Assembly and municipalities throughout the state should take a cue from this trend.

No Reason to Wait

A final recourse of SB 245’s critics is to claim deregulation is moving too fast. In an editorial against the bill, the South Bend Tribune expressed concern the interests of “landline” (read dial tone) users need to be “protected.” Better to wait to the next session while we all have a chance to study the issues, they said. But how much longer can Indiana afford to delay?

Google, Microsoft, eBay, and Yahoo, just to name four unconventional players, all have made clear their ambitions to become broadband service providers. Wireless technology continues to evolve, as does the provocative concept of broadband over power lines (BPL). TXU and Current Communications have just completed a successful trial in Cincinnati and are now planning to launch service in Texas.

Given all the value broadband competition brings, is it in anyone’s interest for Indiana to keep these new competitors at bay while it frets about the future of narrowband dial tone? Does it make sense to wait while neighboring states such as Ohio, not to mention Florida, South Dakota, and Texas, embrace the future through telecom deregulation?

SB 245 will bring Indiana telecom consumers into the twenty-first century. It is an overdue initiative the state needs badly if it aims to keep pace in the broadband-driven economy.

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.