Michigan Moves Forward on Telecom Policy

Published November 1, 2005

Michigan has had little to celebrate lately, given the state’s stubborn economic slump. But a recent breakthrough decision by the state Public Service Commission (PSC) to end price controls on basic telephone service in 30 cities makes Michigan a leader among states in fostering telecommunications investment and innovation. The Michigan legislature must now build on that success.

Rate regulation is a relic of the days when AT&T reigned as a government-sanctioned monopoly. Today, no fewer than 63 companies provide basic telephone service to 36 percent of customers in the 30-city region, which covers most of metropolitan Detroit and parts of Washtenaw County, Flint, and Grand Rapids. Competition also is fierce among wireless and Internet-based telephone services.

Consumers need not worry their rates will skyrocket. The unparalleled choice of telecom options will impose rate discipline far more effectively than the state government bureaucracy, which often has inhibited firms from responding quickly to consumer preferences. Freed from price controls, service providers will be able now to offer a range of flexibly priced service packages as demand dictates. Innovation and investment are sure to follow.

PSC Leadership

The PSC has taken its fair share of lumps in recent years for routinely indulging in regulatory excess. But in this instance, Commission Chairman Peter Lark and newcomer Monica Martinez have benefitted the public and demonstrated true leadership by providing the votes necessary to end the commission’s regulatory control.

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

The sunset this year of the Michigan Telecommunications Act provides lawmakers the opportunity to remake the state as a model for technology investment. Michigan simply cannot afford the cautious approach advocated by those with a stake in the status quo. Indeed, researchers at the Massachusetts Institute of Technology recently concluded that incremental reform increases the likelihood of policy missteps.

“Quick and complete deregulation may not be risk free,” said MIT professor Charles Fine, “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.”

New Legislation

Legislation introduced by Rep. Leon Drolet (R-Clinton Township) and Sen. Shirley Johnson (R-Troy) would, if enacted, dramatically improve Michigan’s regulatory environment. Both bills call for eliminating the authority of the PSC to control the rates and terms of telecommunications services. The commission would retain authority to regulate public safety services, such as 911 access, as well as consumer protection against fraud.

That is precisely the direction taken recently by the Federal Communications Commission (FCC) in recognition of the robust competition in the telecom market nationwide. In a dramatic policy reversal, for example, the FCC earlier this year largely eliminated the “forced access” requirements that compelled traditional wireline phone companies to share their local calling networks with rivals at below-cost rates. Subsequently, the commission likewise exempted both cable and wireline companies from having to share their broadband networks with Internet service providers who lack lines and other transmission infrastructure of their own.

By lifting price controls in southeast Michigan, the PSC has recognized the supremacy of the market in maximizing the availability and affordability of telecom services. Lawmakers would do well to follow suit and heed the advice of former U.S. House Majority Leader Dick Armey, who spoke on telecom issues at a May luncheon in Lansing.

“As you review telecommunications law in Michigan,” Armey said, “you have the opportunity to bring your legal structure up to the promise of the electronic revolution in the twentieth century. But if you’re going to have the same telecommunications regulations you had after World War II, you are not going to be competitive with the rest of the world.”

It’s time for the state legislature to free Michigan’s telecom market and open the state to innovation, investment, and job growth.

Diane S. Katz ([email protected]) is director of science, environment, and technology policy with the Mackinac Center for Public Policy. This article was originally published in the Detroit Free Press.