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April 29, 2011
Wisconsin considering telecom reform


WI capitol iStock_000006601106Medium.jpgLegislators in Wisconsin got set this week to deliberate telecom reform. Next week two committees will conduct hearings on Assembly Bill 14 and Senate Bill 13, which would

  • Exempt Voice over Internet Protocol (VoIP) and data services from state utility regulation,

  • Repeal price regulation, and

  • Require large incumbent local exchange carriers (ILECs) to reduce intrastate switched access rates to mirror their interstate rates within five years. Small ILECs -- who charge the highest rates -- would be exempted for four years, after which PSC authority to order rate reductions would be restored. Meanwhile, for some reason, new entrants would be required to charge identical rates for both intrastate and interstate access beginning immediately.

  • Telecom providers would be allowed -- although not required -- to file tariffs, which would take effect immediately.

  • Programs supported by the state's universal service fund would be limited to essential telecom services.

  • ILECs would be allowed to provide basic voice service through an affiliate or through the use of any available technology or mode until April 30, 2013, after which none of the bill's basic voice service requirements would apply.
The Milwaukee Journal Sentinel cites one critic, who complains

The legislation would strip away 50 years of consumer protection for landline telephone subscribers, said Barry Orton, a University of Wisconsin-Madison telecommunications professor.

Much has changed in telecom in the past 50 years. Fifty years ago, phone service was provided by monopolies in possession of exclusive franchises issued by government. Congress authorized competition beginning in 1996. Today, nearly all consumers have a choice of providers, and a cable company, Comcast, is the nation's third largest phone services provider.

Nationally, 26.6% of households had only wireless telephones at the end of last year, according to a study conducted by the Centers for Disease Control of the U.S. Department of Health and Human Services. Another 16% of households received all or almost all calls on wireless telephones, even though they also had a landline phone. Adding these two categories together, almost 43% of the nation's households either don't have a landline phone at all, or they don't use their landline phone for most of their calls.

The last time we checked, less than 30 percent of Wisconsin's voice service connections were served by ILECs subject to 50(plus)-year-old legacy utility regulation.

Many rural areas don't have alternatives to their current phone provider, and many elderly people don't want to give up their landlines, Orton said.

While it was true at one time that competitive alternatives were limited in rural areas, today wireless and VoIP services are nearly ubiquitous. And the slight gap that remains is closing every day.

Although there may be some people who do not want to give up their landlines, it is difficult to predict consumer preferences or the realities of providing telecom services when technology is evolving as rapidly as it is today. Millions of consumers are "cutting the cord." The Economist recently predicted that if consumers discontinue landline telephone service at the current rate, "the last cord will be cut sometime in 2025."

Customer losses change the dynamics of providing service. As the National Broadband Plan points out (at p. 59),

[A]s customers leave the [Public Switched Telephone Network], the typical cost per line for Plain Old Telephone Service (POTS) increases, given the high fixed costs of providing such service. Between 2003 and 2009, the average cost per line increased almost 20 percent. (footnotes omitted.)

Professor Orton also questions whether telecom reform would add jobs in Wisconsin.

"I suspect there will be job losses," Orton said, as AT&T would not need as many employees to service its landline business if regulations are relaxed.

Regulation has nothing to do with the fact that employment in the wireline telecom industry has been declining for decades as a result new technologies that include fiber optics and computers.

A study by Connected Nation estimates that just a 7% increase in broadband adoption - similar to the higher household broadband adoption in Kentucky versus national growth that was achieved by addressing local supply and demand issues - would create or save 50,748 new jobs per year throughout Wisconsin's economy. Another study by researchers at the Brookings Institution explains that employment in both manufacturing and services industries (especially finance, education and health care) is positively related to broadband penetration.

As we noted in our paper, legacy phone regulation threatens to diminish the massive private investment needed to connect every household to the Internet at the fastest speeds. Private investment in broadband, ultimately, is what telecom reform in Wisconsin is all about.

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