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ECONOMIC ANALYSIS: Telecom reform is paying off big for Indiana

March 3, 2008

In the relatively unromantic world of economic policy, telecommunications research is notable for its blandness and practicality. Yet few things matter as deeply as good public policy toward the deployment of telecommunications. Here, Indiana has a remarkable story to tell.

In the waning days of the 2006 legislative session, Indiana lawmakers passed a telecom reform act that quickly became the national standard for reforming access to broadband communications. It bears repeating: Indiana's video franchising reform has become the national standard. But what is it and what does it mean for Hoosiers?

Broadband Internet access is now a necessary element of business, and some type of broadband access is available virtually everywhere in Indiana (as with the rest of the nation). However, that access can be very, very costly. Even in places where existing cable TV and other cable connections to homes exist, the charge for broadband could be more than $1,000 a year for a residential user. One major reason for the high cost is the residual monopoly power enjoyed by the dominant providers of broadband, the cable TV providers.

Indiana's 2006 telecom reform act ended the cable TV monopoly power in broadband by allowing other service providers to compete within regions for customers. This is known as video franchising.

The results of the legislation, according to a recent study by Ball State University's Digital Policy Institute, are remarkable. In the months following passage of the act, broadband access in Indiana exploded. The state saw broadband access grow almost 75 percent in a year. By the end of 2006, the state had 1.5 million broadband connections. In the 18 months since the legislation was enacted, more than $500 million in new information technology was invested in the state-just by telephone companies now able to compete with cable TV broadband providers. This led directly to 2,200 new jobs in telecommunications in Indiana, and this is just Hoosier workers installing and servicing new connections. My guess is that this spawned considerably more business in the state.

It's difficult to tell what the effect on prices has been-pricing is a closely held industry secret. However, in places where credible studies have been done, a 15-percent to 20-percent drop is common. And, a more subtle effect is emerging-the oncesleepy local monopolists are now advertising vigorously about both price and quality of service. To a trained eye, a billboard advertising customer service is perhaps the best indicator of competition.

This happy outcome was not easy to come by. The legislation that brought about video franchising was opposed vigorously by the cable TV firms in the state.

It is easy in the waning days of a rancorous session to criticize our legislators. But the very short history of Indiana's telecom reform act ought to give us pause. For in the inelegant but important world of telecommunications policy, Indiana has emerged as a true leader.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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