Michigan Ends Telephone Price Controls in 30 Cities

Published December 1, 2005

A breakthrough decision by the Michigan Public Service Commission to end price controls on basic telephone service in 30 cities makes Michigan a leader among states in fostering telecommunications investment and innovation, and the state legislature is moving ahead on bills for further deregulation.

In a media statement announcing the August 4 order, Commission Chairman Peter Lark said, “Telephone customers in Michigan have benefitted from more choices than ever before. It is our hope that Michigan phone companies affected by this order will use this new authority to be more responsive to the pricing needs of their customers, and make Michigan a better place to live, work, and grow business.”

On September 27, the Michigan Senate’s Technology and Energy Committee moved SB 754 to the Senate floor. The legislation calls for regulating only retail residential rates of a basic local call plan of 200 calls per month. The commission would continue to arbitrate interconnection agreements between competitors and also ensure service quality requirements.

In October, the House Energy and Technology Committee held hearings on HB 5237, which would likewise restrict rate regulation to residential, single-line service, though the House version would require only 100 calls or 12,000 minutes under that basic package.

“My bill reflects the new reality of telecommunications competition, in which cable providers, satellite providers, traditional telephone companies, and even power companies will be competing head-to-head for voice, data, and video customers,” said Rep. Mike Nofs (R-Battle Creek), sponsor of HB 5237 and chairman of the Energy and Technology Committee.

Expect Broad Benefits

The Public Service Commission’s order deregulates rates for residential basic local exchange service in Access Areas A and B (defined below), and business basic local exchange service in Access Area B. An earlier order, issued on January 6, 2005, granted SBC Michigan’s request to deregulate rates for business local exchange service in Access Area A for a one-year trial period ending January 6, 2006. The trial period is under legal challenge.

Access Area A consists of the Detroit, Royal Oak, and Southfield exchanges. Access Area B consists of the Ann Arbor, Auburn Heights, Birmingham, Center Line, Commerce, Drayton Plains, Farmington, Flint, Grand Rapids, Lansing, Livonia, Mt. Clemens, Northville, Plymouth, Pontiac, Rochester, Romulus, Roseville, Trenton, Troy, Utica, Walled Lake, Warren, Wayne, West Bloomfield, Wyandotte, and Ypsilanti exchanges.

Significant as the new rate deregulation is, it is limited to 30 cities and does not address the myriad regulations that impede broadband deployment and other telecom advances. It is now up to the Michigan legislature to institute reforms that would enhance all telecom services statewide.

Regulations Are Anachronistic

Telecom rate regulation is a relic of the days when “Ma Bell” reigned as a government-sanctioned monopoly. Today, no fewer than 63 companies provide basic telephone service to 36 percent of the customers in the 30-city region. Competition also is fierce among wireless and Internet-based telephone services.

The Public Service Commission has taken its share of lumps in recent years for routinely indulging in regulatory excess. But Lark and commission newcomer Monica Martinez provided the votes necessary to end the commission’s regulatory control.

Telecom Act Ends Soon

The sunset of the Michigan Telecommunications Act at the end of December 2005 provides lawmakers an opportunity to remake the state as a model for technology investment. The act includes prescriptions for access requirements, price controls, and service restrictions that contradict its stated purpose of “encourag[ing] competition to determine the availability, prices, terms, and other conditions of providing telecommunication services.”

In “Can We Avoid Repeating the Mistakes of the Past in Telecommunications Regulatory Reform?” published in March 2005, researchers at the Massachusetts Institute of Technology concluded that incremental reform increases the likelihood of policy missteps.

“Quick and complete deregulation may not be risk-free,” said MIT professor Charles Fine in the report, “but our research in other industries indicates it is preferable to stretching deregulation out over many years through a piecemeal and incremental process if vigorous competition already exists.”

Diane S. Katz ([email protected]) is director of science, environment, and technology policy at the Mackinac Center for Public Policy in Midland, Michigan. This is an expanded version of an article she wrote for the September 1 issue of the Detroit Free Press.

For more information …

“Can We Avoid Repeating the Mistakes of the Past in Telecommunications Regulatory Reform?” is available online at http://www.freedomworks.org/reports/081205.pdf and at http://bellsouthcorp.com/policy/telecomreformstudy/MIT.pdf.