New Study Urges State Lawmakers to Opt for Retail Telecom Rate Deregulation

The report says lawmakers should opt instead for systems that “allow free entry, exit, pricing and product flexibility,” with state intervention limited to certain matters of public safety and consumer protection such as protection against fraud and provision of 911 and universal service. State intervention, when needed in these areas, should be transparent to market forces and free of arbitrage opportunities, the report says.

Otherwise, the report says state laws should: (1) Treat like services in like ways, regardless of provider. (2) Avoid regulation of new technologies to create incentives for development and deployment. (3) End rate and service regulation for competitive telecom services, especially those subject to intermodal competition from cable, wireless and VoIP providers. (4) Allow telecom innovators to earn profits commensurate with their risk. (5) Minimize entry barriers and administrative oversight. The report by the market-oriented policy research group includes a model state telecom act incorporating these principles.

The report said competitors have invested billions of dollars in conventional and new technologies, but “competition is stunted in states through price signals that give false incentives to enter some markets and not to enter others.” Gifford, former chmn. of the Colo. PUC, said the traditional regulatory concepts of “public interest” and “just and reasonable” have no place in the new competitive environment: “Those standards are simply too capricious to have a meaningful or stable definition” in a changing, multimode competitive market.

Echoing ideas in the PFF report, SBC, Verizon, Sprint and the CWA are backing 2005 draft legislation in Ind. that would deregulate rates for all retail services other than residential single-line basic exchange. Monthly basic residential rates for the first line would be capped at present levels, with increases limited to $1 through 2010. Rates for bundles and packages of retail services also would be deregulated. The deregulation would take effect in 2007 when the current cap systems for the 3 incumbents expire.

The telcos argue that rate deregulation would give them a better chance to compete with unregulated competitors that have used their freedom to price and bundle services to grab large shares of incumbents’ business. SBC said retail rate deregulation “would align Indiana law with marketplace realities.” The CWA said it supports retail rate deregulation for the incumbents because it will ensure that these unionized carriers can remain competitive against rivals that have “disposable” work forces, thereby preserving telecom jobs.

SBC, Verizon and Sprint operate in Ind. under price cap systems that prohibit increases in basic local rates and limit annual increases for vertical services such as caller ID and call waiting. Other services are flexibly priced, which means rate changes normally aren’t questioned but are subject to review and rollback by regulators. Competitive carriers’ rates aren’t regulated in Ind.

Meanwhile, a 2005 deregulation bill prefiled in Utah (HB-35) would deregulate Qwest’s retail rates in any exchange where a competitor’s comparable service is available. The exception would be basic residential local service, which would remain under nonindexed caps until 2007. After that, residential basic service could be deregulated in any exchange where competitive alternatives were available. In the event market forces proved unable to restrain prices, the bill would allow the PSC to impose price caps in specific markets. Qwest currently is regulated by indexed price caps for its basic exchange and noncompetitive services. The bill also would allow other incumbents, all of them under 30,000 lines, to switch from rate-of-return to price caps by filing an alternative regulation plan with the PSC. This proposal was supported by the legislature’s joint interim public utilities and technology study committee.

Deregulation isn’t the only issue facing state lawmakers in 2005. A prefiled Okla. bill would require state govt. agencies that outsource their telephone call center work to use vendors whose service is physically located in the state. If no in-state bidder was found, SB-5 would allow use of a non-Okla. company physically located in the U.S. A no-call bill pre-filed in Tex. would require that the state no-call list offer the public the option of free registration and renewal over the Internet. The bill (HB-210) would require development of a state website for no-call registrations and would require that the site address be published in telephone directories. The measure also would require that the names and numbers on the state list be placed on the national no-call registry.

A new S.C. bill for 2005 would require hotels and motels to post their rates for phone, fax and Internet service at the front desk, and a notice in each room advising guests that they can call the front desk for the phone rates. The bill will be assigned to the Senate Labor, Commerce & Industry Committee. A wireless bill in S.C. (SB-181) would prohibit wireless providers from charging re-activation fees when customers replace lost and damaged phones. The bill also would prohibit wireless carriers from collecting breach-of-contract penalties from customers greater than the actual loss they suffer from the breach. The legislation is going to the Senate Judiciary Committee.

New bills for 2005 consideration in N.J. include SB- 2123, which would prohibit local exchange carriers from offering caller ID blocking services except to law enforcement agencies, domestic violence shelters and other entities with a special need for privacy. The legislation would designate the Board of Public Utilities to review applications for caller ID blocking and establish rules for deciding those applications. The bill was assigned to the Senate Commerce Committee. Another new bill in N.J. would make it a 2nd-degree crime for a prison or jail inmate to possess or use a wireless phone. Under SB-2134, inmates would face up to 10 additional years in prison and a $150,000 fine if convicted. Sponsors said current law provides for administrative penalties but those aren’t severe enough to discourage inmate cell phone use for organizing criminal activity in and outside prison.