Telecom Regulations Are Cutting Landline Use

Published October 10, 2008

Regulations imposed in the days of landlines and telephone monopoly are burdening consumers and businesses alike and should be dismantled, according to a new study from the Discovery Institute.

“More Broadband, Increased Choice and Lower Prices Begin With Regulatory Reform,” written by Hance Haney and George Gilder and released August 13, finds the growth of wireless communication and Internet telephony, coupled with regulatory burdens, is producing up to 10 percent annual decreases in the number of consumers using traditional telephone lines.

“Nobody has a landline any more,” said Pamela von Friesen, a housewife and model in San Diego, California.

‘Competitive Disadvantage’

Traditional telephone companies, called incumbent local exchange carriers (ILECs), face regulatory burdens competitors not bound by landlines do not.

“Current regulation is absolutely a competitive disadvantage,” said Mike Shultz, legislative and regulatory vice president of Consolidated Communications, which operates an ILEC in Illinois and additional operations in Pennsylvania and Texas. “Competitors have less regulatory requirements than the incumbent local exchange provider.”

One of the requirements states impose is the development and submission of tariffs, or service and fee descriptions, when ILECs expand into new business areas. Consolidated Communications is expanding its business into Internet and video delivery and faces burdens its competitors do not.

According to Shultz, “If we want to offer a new service or product, we must file tariffs and cost support at the [Illinois Commerce Commission], which in turn, must be approved. This could take anywhere from 30 to 60 days. Our competitors do not have the same obligation and therefore can implement new services or products at much quicker and less costly rate.” That means ILECs must in effect announce their business plans in advance, he notes.

Regulation Is the Problem

Haney says instead of finding the “right” mix of interstate and intrastate rules, the interstate/intrastate regulation itself is the problem.

“If we were writing on a blank slate, we wouldn’t assign primary jurisdiction for telecommunications to 50 state commissions. It made good sense in the 1930s when phone calls were either local or long-distance, but these categories are irrelevant in the Internet age,” said Haney.

At the national level, the Federal Communications Commission’s attempts to create rules promoting competition often fail, the study says. Many would say the marketplace needs time to adjust to a given set of rules, but that’s not the case here, Haney says.

“Policymakers did not create competition,” Haney said. “Advances in technology made competition possible. All that was needed was for policymakers to clear away regulation which conferred monopoly privileges.

“Some pro-competition policies are good, such as freeing up more spectrum for competitive bidding by telecommunications providers,” Haney continued. “But too often pro-competition policy is really about government picking winners and losers. We ought to let consumers do that.”

Vested Interests

Some state legislators say they want to delay deregulation until all consumers have multiple choices, but market analysts say the regulations themselves are what is impeding the growth and spread of consumer choice.

“We would say those choices are already here. Most ILEC wirecenters already have multiple forms of competition from CATV, CLECs, VoIP, and wireless providers,” Shultz said. CLECs are competing local exchange carriers, who resell the infrastructure of the incumbent carrier, often under regulated terms.

Added Haney, “There are a lot of vested interests in the status quo. And the only benefit legislatures accrue from the current regulatory system is avoidance of the political cost of taking on those special interests.”

A factor in the decision on where to live is the cost and quality of communications services, the study found. In a regulated environment, the cost-shifting from consumers in low-cost areas to those in high-cost areas may represent a subsidy for what once was a luxury, Haney says.

“Regulation shouldn’t inhibit the deployment of more efficient technology, nor impose unequal obligations and benefits among competitors,” said Haney.

Loren Heal ([email protected]) writes from Neoga, Illinois.