Ratepayers are in for shock if the state’s giant, monopoly telephone companies are successful in their high-finance campaign to deregulate basic local telephone service during the 2006 legislative session. Two bills, Senate Bill 245 and House Bill 1279, are being rammed through the Indiana House and Senate at the request of the new AT&T, formerly SBC, and Verizon, which just bought MCI. These bills allow monopoly telephone companies to set their own rates, i.e. to deregulate local monopoly phone rates.
The proponents of the two bills insist that local phone service should be deregulated in order to foster competition; ensure that broadband (high-speed Internet service) technology is deployed throughout the state; allow AT&T to compete in the wireless and broadband markets; and, modernize Indiana’s outmoded telecommunications laws. They also claim that we should deregulate because wireless and Internet voice technology (voice over Internet protocol) are viable substitutes for traditional (wireline) phone service.
However, these arguments in support of the legislation are not credible.
First, Indiana law is not outdated. Indiana’s alternative regulation statute (IC 8-1-2.6) provides the Indiana Utility Regulatory Commission (IURC) with flexibility to update Indiana’s telecommunications laws to foster ongoing competition in the rapidly changing telecommunications market. In fact, in its 2005 report the Indiana Office of Utility Consumer Counselor said, “The 1985 law has done its job, creating an environment where competitive providers can come into Indiana and offer innovative services and packages of services to most… customers.”
Secondly, wireless and Internet voice services are not viable alternatives to traditional phone service. In its December 2005 order, the IURC said, “We have noted… that wireless telecommunications is not a substitute for wireline [traditional] telecommunications… at this time.” The Commission expressed similar concerns with respect to Internet voice technology in terms of “reliability … and other measures of service quality.”
Third, AT&T does not need deregulation in order to compete in the wireless and broadband markets. AT&T owns 60% of Cingular and AT&T wireless, making it, according to its 2004 annual report, the largest wireless provider in the country. In recent commercials AT&T also claims to be the largest broadband provider in the world. Moreover, in its fourth quarter report for the end of 2005, AT&T reported that its wireline services (traditional phone lines, i.e. copper wire) were very lucrative. This was due to a “21% growth in DSL/Internet revenues” using those copper wire lines. AT&T said, “For the full year 2005, AT&T increased its DSL lines by 1.8 million, its best-ever annual gain.”
Fourth, broadband is being deployed in Indiana while local service remains regulated. A 2005 report by the Federal Communications Commission reveals that broadband lines increased 53% in Indiana from 2003 through 2004. Moreover, largely because the IURC ordered both Verizon/MCI and SBC/AT&T to provide broadband to 73% and 77% of their customers respectively are they now offering these services more widely. In contrast, broadband development flourishes as other entities, such as the Indiana Fiber Network and various municipalities, voluntarily expand broadband services in towns and in rural areas across the state, unfettered by Indiana’s current regulatory system.
Fifth, deregulation will not foster competition but, rather, aid in throttling it. The monopoly phone companies control 93% of the local lines in their territories. They have bought their biggest competitors. Therefore, consolidation in the industry coupled with unjust rate increases for the biggest companies would serve to diminish competition and make them the biggest winners. Who are the biggest losers if this legislation passes? Why ratepayers, of course.
Grant Smith
CAC Executive Director