Deregulating Telecommunications Would Let Indiana Join The Future

State needs reform to keep pace in broadband-driven economy

First, thank you for The News-Sentinel’s excellent editorial of Jan. 16, “Take the fast track to broadband.” It made clear that telecom reform legislation now headed to the floor of the Indiana Senate will dramatically reshape telecommunications regulation. This reform is necessary and welcome.

Although critics say such reform protects incumbent telephone companies and does little for consumers, the opposite is true. It eliminates many regulations of a monopoly era that artificially sustain and protect older, obsolete services against competition from new technologies, including wireless and voice over the Internet protocol.

Across the country, millions of consumers are choosing these new technologies. Yet Indiana lags behind the nation in its rate of adoption of wireless services and broadband connections, because the regulatory climate has not nurtured their growth. Deregulation will lower barriers to entry and investment for competitors. Consumers will benefit because new and existing providers will have new incentives to experiment and succeed with delivery of wireless and broadband.

Passage of this bill will unleash true “intermodal” competition — phone, cable, wireless and Internet providers will compete for the same consumer dollars in phone, Internet and entertainment. Each segment, however, will have the freedom to leverage its respective assets and strengths. This is distinct from past attempts to “manage” competition through bureaucratic rules that all but forced players to mimic one another while limiting service-bundling, partnerships and the marketing flexibility that leads to value and differentiation.

Deregulation puts cable competition on the “fast track,” as you say, by elevating video franchising authority to the Indiana Public Utility Commission. To see the payoff of this change, all Hoosiers need to do is look at Texas, where a similar franchise-reform bill passed in August with great popular support. Already, Verizon has launched competitive video services in six communities in the Dallas-Fort Worth area and plans to have its new fiber-to-the-home network pass more than 400,000 homes in the area by 2006.

Deregulation also prohibits Indiana municipalities, absent certain conditions, from owning and operating broadband systems. Taxpayer-funded municipal broadband continues to be a compelling concept, but it has largely failed in all but the smallest communities. Moreover, when municipal networks don’t fail, they tend to stall, placing a town in broadband limbo.

In Indiana, Crawfordsville has been floating a municipal broadband proposal since 2004, but still has not attracted the funding on the interest terms it wants because of the risk of the venture. Meanwhile, the prospect that the town may yet enter the market as a competitor keeps private broadband investment on hold because no enterprise wants to risk the possibility of competing against an entity that can draw funds from a captive tax base.

After assessing the cost, Philadelphia, Minneapolis and Anaheim, all of which had proposed city-owned systems, instead elected to go with commercial providers who will finance, build and own the networks at no taxpayer expense. The Indiana General Assembly – and municipalities throughout the state – should take a cue from this trend.

A final recourse for deregulation’s critics is to claim it is moving too fast. In an editorial against the bill, the South Bend Tribune expressed concern that the interests of “landline” (read: dial tone) users need to be “protected.” Better to wait until the next session while we all have a chance to study the issues, they said. But how much longer can Indiana afford to delay? Google, Microsoft, eBay and Yahoo, just to name four unconventional players, all have made clear their ambitions to become potential broadband service providers. Wireless technology continues to evolve, as does the provocative concept of broadband over power lines. TXU and Current Communications have just completed a successful trial in nearby Cincinnati and are now planning to launch service in Texas.

Given all the value that broadband competition brings, is it in anyone’s interest for Indiana to keep all these new competitors at bay while it frets about the future of narrowband dial tone? Does it make sense to wait while other states embrace the future through telecom deregulation? Deregulation will bring Indiana telecom consumers into the 21st century. It is a badly needed, overdue initiative that the state needs to keep pace in the broadband-driven economy.

Steven Titch is a policy analyst at Reason Foundation.