Banking & Finance and Opinion and Economic Analysis and Telecom and Technology

HICKS: Telecom reform in Indiana worked

March 5, 2011

It is rare that an economic study can be shown to be pretty clearly right or wrong. When a study on an important policy matter, such as telecommunications reform, can be compared against actual data, it is cause for some celebration.

When the study in question is shown to be substantially correct, it is an occasion for triumphal parades, grand speeches and a street festival. When your columnist is the author of such a study, nothing less than the bacchanalia of Mardi Gras combined with the sheer joy of Victory in Europe Day is in order. Let me explain.

In 2006, Indiana embarked on important reform of the markets for cable access television. New technology had rendered a two-decade-old law that granted local monopolies obsolete. It is hard to assess precisely what this law would do since there’s no easily accessible data on the number of cable TV subscribers by state for every year or the price of the service. However, we know that deregulation of this type should reduce price and increase access to cable TV. But, to test whether there would be some effect, we could look at broadband access, which is carefully monitored by the FCC and frequently bundled with cable TV purchases.

Some colleagues and I at Ball State University created a statistical model that accounted for the lower 48 states over more than a decade in which about half changed the laws. This allowed us to test the effect of changing the law on broadband access in those states. We found that deregulating cable TV would lead to a big burst in broadband access.

For Indiana, that meant about 225,000 more households having access to broadband telecommunications in the two years after the law passed. Last week, the FCC released the data, and we were pretty right. In fact, over 275,000 more Hoosier households had broadband access in the time we estimated. For those unaware of the limitations of economic modeling, these two numbers are pretty darned close, and given a slight trend we estimated, an almost perfect explanation for widespread growth in use of broadband telecommunications in Indiana.

But what does this mean?

First, economic models honestly applied can do a good job in explaining these types of things. Second, deregulation of monopolies tends to almost always make consumers better off. Indiana’s broad and effective telecommunications reform of 2006 is a classic example of this. Third, policies that favor competition tend to lead to greater investment, hence more jobs. These are not new lessons, but then, as in most things, we need occasional reminding.

Not everyone in Indiana supported these reforms. One member of the House vehemently opposed any changes to regulations regarding monopolies. To no surprise, they were among this member’s largest campaign contributors. This member of Indiana’s Legislature is currently hiding in Illinois. But that’s OK. While there, perhaps he can convince them to postpone their own telecom reforms—and so send a few more jobs to Indiana.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
 

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