Utilities and Government and Economic Development and Technology

STATEHOUSE DISPATCH: Telecom regulation takes center stage at Statehouse

February 7, 2005

While this session will, necessarily and constitutionally, be all about the budget, you can expect a few interesting stops during the long journey to that point.

Even as the House Ways and Means Committee was hearing last week from assorted state agencies about their respective budget needs, other lawmakers were hearing from Hoosiers more interested in altering state policy than what the state's fiscal bottom line might be.

And just like the governor will be distracted this week-as he should be-with the first scheduled execution on his watch, others also had their attention diverted to the stuff of government.

That meant bills dealing with open containers of alcohol in vehicles and highway speed limits earned lots of public attention, even as a measure to create an Indiana Department of Agriculture was a lower-profile issue for those from big cities and their now-sprawling suburban areas.

But the area you should keep a close eye on over the next few weeks is telecommunications regulation. The outcome of this battle royale may offer an interesting indication of how the administration of Gov. Mitch Daniels views government regulation in a new era, and may also portend change for regulation of energy providers in Indiana.

The telecommunications battle involves the traditional telephone companies, long-distance providers, cable companies, wireless phone companies, electric utilities and assorted other private-sector entities.

Because of the high stakes, the battle also touches local governments that want to become service providers themselves, those with an interest in economic development that want high-speed Internet access extended, and organizations representing consumers who are concerned about price and access.

Companies are out to protect their respective market share or to gain more of it, free themselves from the shackles of state regulation or subject others to it, and gain more flexibility in service provision and pricing or force competitors into such regulation.

Government telecommunications regulation was imposed back when "the telephone company" was deemed a monopoly and treated as such. The regulatory scheme has not kept pace with the market.

The sophisticated consumer today-effectively everyone now-demands much more than could have been envisioned even five years ago. Receiving email over a cellular telephone that also sends pictures was not contemplated by most until recently. Now many Hoosiers send video to their home e-mail from their cell phones. Many of those computers receive data via broadband access and not the telephone modems that dominated just five or 10 years ago.

Now, the electric companies are providing high-speed Internet access, competing against telephone and cable television companies. The telcos want to offer bundled packages with high-speed access, free long-distance calling and regular phone service at reduced prices-along with reduced oversight. And, at the same time, new calling options emerge, such as voice over Internet protocol, which could change the entire regulatory picture.

Legislators have several problems to sort through here.

Technologically, the field is changing so quickly that legislation considered in February may not effectively cover a new application developed this summer or a new service offered by a non-traditional provider of that service. Even the Federal Communications Commission has been frazzled by the rapid change in technology, preventing it from imposing some regulatory standards.

Economically, the marketplace has been sorting itself out. This includes activity from the top down-with companies being bought up for economies of scale or to bring companies into new markets or gain market shares (recently this includes Sprint/Nextel and SBC/AT&T). And it includes activity from the ground up, where consumers are in control of their own destiny. They can decide they have more flexibility at a lower cost if, for example, they switch from a land line to a cellular phone, or opt for bundled services rather than choosing them a la carte.

Questions of equity also arise. Should the traditional service providers, who built the infrastructure others seek to tap, be rewarded for their efforts? Should they be considered an impediment to economical progress and effectively ignored? Should they simply be considered a monopoly and guaranteed a reasonable rate of return on their pipeline? Should a non-traditional provider be subject to what we force upon the traditional providers, such as so-called "lifeline" telephone service?

Finally, basic questions about regulations arise. During telephone-related debates in the Senate a few years ago, questions arose about who should make such technologically based decisions: lawmakers or the Indiana Utility Regulatory Commission? The IURC is staffed with experts and is theoretically better able to react to changes in the marketplace, but where is the line on policy vs. technology to be drawn?

The governor also will be appointing a new IURC chairman later this year, and thus how this debate plays out may have an impact on other forms of state regulation-and even unrelated industries-in the next several years.



Feigenbaum publishes Indiana Legislative Insight. His column appears weekly while the Indiana General Assembly is in session. He can be reached by e-mail at edf@ingrouponline.com.
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