Is Telephone Regulation Obsolete?

Joanne Wieting, of Dunbar, Wisconsin, has been using a landline telephone all her life and has no plans to get rid of it and go the cell phone-only route. In fact, she says, she couldn’t do that if she wanted to. Wieting is the office manager of a company that distributes copper products for log homes. Her hometown, in a rural area just south of the upper peninsula of Michigan, gets spotty cell phone coverage at best.

Wieting has a cell phone but rarely even turns it on. She uses traditional phone lines to power her computer and the machine that swipes credit cards for orders at the copper works.

So the 54-year-old Wieting wasn’t exactly pleased earlier this year when she found that state lawmakers were considering removing all regulations on landline phone service and leaving it up to the market to set prices and terms of service. She isn’t precisely sure what it might mean for her, only that “I don’t want the state messing things up.”

What role should states play?

Nonetheless, it could happen. More than 20 states have moved away from strict telecommunications regulation, and this year the issue has been debated in Florida, New Jersey and Texas, as well as Wisconsin. The regulation, like the industry itself, is complicated. Trying to understand the key technologies that are used — circuit switching, packet switching, Voice over Internet Protocol -can make a layman’s head spin. The federal and state governments have separate but overlapping roles in the process, and state laws differ widely from one place to another.

So it’s only natural that some states are asking whether they should get out of the business of controlling rates and quality of service for traditional landline phones. Those controls were drawn up for a totally different technological era. States don’t regulate the newer wireless services, deregulation advocates say. Why not just throw the obsolete rule book away?

One thing that’s indisputable about traditional phone service is that fewer people are relying on it all the time. More than one in four American households now have wireless telephones only — an eightfold increase over just six years, according to the latest government figures . That increase continues at a rapid rate. The number of ”wireless-only” households (26.6 percent) now markedly exceeds the number of households with only landline telephones (12.9 percent).

Job creation promised

Proponents of deregulation say the move toward cell phones is precisely why the industry should no longer have to adhere to needless rules. Removing outdated regulations, they say, will stimulate investment in new technologies and create jobs.

“This will give private business greater ability to invest in 3G and 4G networks in Kansas,” Governor Sam Brownback said when he signed a phone deregulation measure last month. Brownback was referring to the third and fourth generation of cell phone technology that allows users to access the Internet while making phone calls. “This will make more of our state more competitive and create an environment for high-tech growth,” the governor said.

Wisconsin lawmakers are hearing a similar argument. “Wisconsin’s archaic telecommunications laws currently require telecom providers to invest their resources in old technologies of the rotary phone era that businesses and consumers have long abandoned,” Steve Baas, vice president of the Metropolitan Milwaukee Association of Commerce, wrote in an op-ed in the Milwaukee Journal Sentinel.

Baas and others cite Illinois, Indiana, Iowa, Michigan and Ohio as having moved away from highly regulated phone service. They say that Wisconsin is at an economic disadvantage against those states, and that loosening up the system could create or retain 50,000 new jobs in the state.

Consumer advocates aren’t buying it. David Bergmann, who chairs the telecommunications committee of the National Association of State Utility Consumer Advocates , says job creation is a strategy that telecom deregulation supporters tout, but one that is “very seldom backed up by firm commitments.” He says about eight states require economic development in exchange for further deregulation. States that don’t include concrete requirements, he warns, may find that new investment and jobs are “hollow, unfulfilled promises.”

Price Concerns

Consumer advocates also worry that deregulation will hurt those who don’t have cell phones, including many elderly people and residents of rural areas.

Barry Orton, a professor of telecommunications at the University of Wisconsin-Madison, says that the proposal in that state would eliminate the telephone providers’ obligation to bring services to all areas of Wisconsin. Under the plan, the companies wouldn’t have to report profits and expenses to the Wisconsin Public Service Commission, which would no longer control rates or monitor the adequacy of phone service. “Market forces will be consumers’ only protection,” he says . “Unhappy landline users would need to switch to a cable-based or cellular service.”

Florida Governor Rick Scott is pushing a similar deregulation of landline telephone service, arguing that increased competition will lead to lower prices for consumers. But there is substantial opposition. AARP opposes the measure, saying it will lead to higher-priced services for seniors. “Deregulation is theoretically a good thing but theory and practice are many times not the same,” warns Albert Williams, a finance professor at the H. Wayne Huizenga School of Business and Entrepreneurship in Fort Lauderdale.

A deregulation proposal in New Jersey was stalled earlier this year after it ran into opposition from seniors worried about their rates going up. A 2009 survey by the National Association of State Utility Consumer Advocates found that rates rose in 17 of 20 states that deregulated.

Sherry Lichtenberg, who specializes in telecommunications for the National Regulatory Research Institute , says it’s too early to tell the true impact of state deregulation efforts, particularly because the federal government will continue to provide some oversight. She notes that it has been decades since the airlines deregulated and even now there are changes and new protections being added. The same could happen with telecommunications. “You never know what is going to happen when these bills pass,” she says. “Consumers have to be vigilant.”

– Contact Pamela M. Prah at [email protected]