State regulators this week endorsed a plan to increase competition in long-distance telephone services, a move likely to curb rates and improve service quality if approved by the Federal Communications Commission. This promising development contrasts with the recent introduction of legislation to revive price controls that would impede the benefits of a more open telecommunications market.
Difficult though it may be for some lawmakers to tame the regulatory impulse, the proposed legislation (See SB1 at www.michiganvotes.org) would invite a protracted court battle that Michigan taxpayers can ill-afford. Indeed, a similar attempt by the Legislature in 2000 was quashed by the Sixth Circuit Court of Appeals.
At issue is the fee all consumers pay to transmit long-distance calls over the local telephone network. State law currently limits this "common line" charge to the rate established under federal law — $5.34 per month. But legislation proposed by Sen. Gerald Van Woerkom, R-Muskegon, and sanctioned by Senate Majority Leader Ken Sikkema, R-Wyoming, would require telephone companies to seek approval from the Michigan Public Service Commission (PSC) for any "common line" charge.
The PSC appears wholly uninterested in reviving the very rate regulation its members have worked for years to eliminate. On Monday, for example, the commission unanimously recommended that federal regulators allow SBC Communications Inc. to offer long-distance services — a major advance toward full market deregulation. As PSC Chairwoman Laura Chappelle told the Detroit Free Press: "Let the carriers duke it out . . . rather than (the commission) micromanaging rates."
Messrs. Van Woerkom and Sikkema say they are only attempting to secure rate relief for consumers. And rivals of the Baby Bells are embracing the proposed regulation as a means of improving their competitive standing by hobbling the competition. But government interference in the telephone market is precisely what kept rates artificially high for decades. In fact, SBC, the state’s largest local telephone company, already is preparing to cut "common line" rates by $20 million and has reduced basic service rates by $29 million in the past year. That the rate cuts coincide with the company’s dramatic 20-percent loss of market share is no coincidence. Market competition is a far more efficient regulator of prices than government.
Even if rate regulation could somehow be justified, the approach prescribed by the Van Woerkom bill is utterly flawed. The legislation directs the PSC to determine a company’s "reasonable rate of return" — whatever that means — in setting an acceptable "common line" charge. This was possible a decade ago, when all components of a monopoly providers’ revenue were tightly regulated. But Congress and state legislatures have deregulated most telecom rates in recent years. Thus, the PSC cannot possibly project a company’s earnings because they will fluctuate as competitive forces constantly reshape the market. That is why the Michigan Legislature eliminated "rate of return" regulation in 1991.
Moreover, the Van Woerkom bill singles out companies with a customer base of 250,000 or more. This selective application of rate regulation would appear to violate the Fourth Amendment’s equal protection clause. And telephone company executives say they are fully prepared to launch a legal challenge should the legislation actually become law.
It is curious that Mr. Sikkema considers this bill a priority — as demonstrated by its designation as Senate Bill 1. With the state’s fiscal crisis and Medicaid headaches, the Legislature certainly has more pressing matters at hand. (And that the rate regulation could cost the state Treasury some $18 million seems to have eluded its advocates.) It is all the more curious considering that agreements on new "common line" charges recently negotiated by former Gov. John Engler were endorsed by both the PSC and then-Attorney Gen. Jennifer Granholm.
A spokesman said the majority leader wants to send a strong message that consumer protection remains a top priority. Assuming that’s true, he, the Legislature and Gov. Granholm would do well to further deregulate telecommunications rather than reinstitute the very regulation that has consistently failed to benefit consumers.
Diane Katz is director of science, environment, and technology policy for the Mackinac Center for Public Policy, a research and educational institute based in Midland, Michigan. More information about telecom legislation is available at www.michiganvotes.org.