Telephone Deregulation Continues

Fuld-modell-frankfurtThere is a package of five bills before the legislature in Colorado that would deregulate telephone service there. If they pass, and it looks likely that they will, Colorado will become the 21st state where telephone deregulation has occurred to some extent.

I have been part of that regulatory process for years and I have mixed feelings about. One of the primary bulwarks of telecom policy in most states has been to hold the cost of residential telephone service as low as possible to make landlines affordable. I can remember many rates cases in various states where requests for rate increases in residential phones were either denied or highly curtailed. And the result of this persistent regulation over the years has been that in many states the prices for residential rates has been held below costs.

When I say that, I am referring to fully allocated costs where all of the costs of the business are spread across all of the products being sold. Regulators had many reasons for keeping costs low. One was public policy and the belief that all houses should be able to afford landlines. And back at the time when 98%+ of homes had landlines that probably was good policy. But over the years there also has grown the feeling that the large telcos have milked the profits out of the copper network and that almost anything they charge for them is excess profits.

One thing that is for sure is that after deregulation that the price for residential phones rises. The most extreme example was in California where the rates went up over a few years by 260%. But that is partially due to the rates there being help extraordinarily low for many years compared to other states.

But the current more towards deregulation is not about charging more for phone service, although that is a natural consequence. Instead, the phone companies are trying to create the mindset that copper is obsolete and needs to be phased out of service.

Let’s face it, the copper networks are getting old. An AT&T spokesperson on Colorado has been quoted to say that landlines will be obsolete by 2020. Many of the copper networks still operating in big cities and older suburbs were built in the 1960s. And frankly the phone companies have cut back on maintenance of copper and the networks have deteriorated. Small town America understands this better than anybody since in many rural areas there are barely any technicians to be found to fix problems.

Replacing the copper is inevitable. The problem comes in that in many areas there are no alternatives. First is the issue of cost. In rural areas the only alternative to copper is wireless, and households would need to replace a $20 landline with one or more cell phone, which could easily cost $100 or even much more per month. And that is where cell phones work. No matter how pretty of a picture that AT&T and Verizon try to paint with their nationwide coverage maps, there are still plenty of places in the country where cell phone coverage is terrible. If you have even been in a town where you have to walk around outside to find that one magic spot where you can get a cell signal you will understand that cellular is not always an option. And you don’t have to go very far outside City limits in rural counties to find huge zones with no cellular coverage.

The Colorado bills don’t just deregulate the price of phone service. The bills go further and take away the complaint process for phone service away from the state Commission there. If a consumer wants to file a complaint they would have to go to the FCC. Another bill deregulates VoIP service, which is telephone service delivered over the Internet or over an IP connection on a cable network. When you see those kinds of provisions in laws you know they were written by the large phone companies who want a lot more than a plan to look at the end of copper.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s