(Note: The following is an edited version of testimony delivered by Diane S. Katz, director of science, environment and technology policy at the Mackinac Center, to the House Energy and Technology Committee on Oct. 12.)

The importance of the decisions about to be made by the Michigan Legislature in rewriting the Michigan Telecommunications Act cannot be overstated. Whether lawmakers embrace a free and competitive telecommunications market or succumb to special-interest pleadings and the regulatory impulse will determine whether we create or destroy jobs, invite or deter investment and benefit or burden Michigan consumers.

The sunset of the telecommunications statute this year provides the opportunity to remake the state as a model for technology investment and innovation. Michigan simply cannot afford the outdated approach advocated by those with a stake in the status quo. Indeed, researchers at the Massachusetts Institute of Technology recently concluded that incremental reforms increase the likelihood of policy missteps.

Transforming telecom policies will demand courage. As demonstrated by the irresponsible actions in the Senate last week, resistance to reform runs strong among those with a vested interest in the status quo. But the rash of new regulations in Senate Bill 754, if enacted, would make Michigan a national laughing stock, as other states embrace deregulation.

Enhancing consumer choices and technological innovation is far more important than preserving regulators’ powers or special-interest advantages.

For all the mind-boggling technicalities of modern telecommunications, sound public policy need not be complex if guided by time-tested principles of American free enterprise. Pervasive regulation has grossly distorted Michigan’s telecom market and thus ill-serves consumers and the economy.

The regulatory regime of price controls, service mandates and marketing restrictions imposed decades ago has been overtaken by the abundant, affordable telecom options available throughout Michigan today. For example, the market share of local service providers other than Verizon and SBC has increased from 3 percent in 1999 to 26 percent in 2004. Mobile phone subscriptions more than doubled in the same period, to nearly 6 million. Moreover, some 32 companies now provide broadband services. Notably, 67 percent of the broadband access is provided by cable firms, who represent a formidable competitive challenge to the incumbent wireline companies.

Major reform is underway at the federal level. In the past year, the Federal Communications Commission eliminated many of the regulatory disparities — technological, as well as geographic — that comprised old regulations. Consequently, much of the regulatory authority once wielded by states has been abolished. This is not to say that state and local governments will not have any regulatory authority in the future, but the extent of that authority will be determined by federal law. It would be a grievous mistake for the Michigan Legislature, or Attorney General Mike Cox, to attempt a power grab that would only embroil the state in a costly and fruitless court battle.

Gov. Jennifer Granholm repeatedly has stressed the need to attract investment to Michigan. Trailing in job creation and economic growth, the state cannot afford its reputation for regulatory overkill. In hopes of restoring Michigan to its rightful place as an economic and technological powerhouse among states, the Legislature should consider the following recommendations:

  • Eliminate rate regulation. Price controls distort competition and inhibit investment. Competitive pricing would actually impose tougher price discipline on firms than rate regulation.

  • End regulatory disparities. All providers in a competitive marketplace should be subject to the same rules and regulations. Such regulatory "parity" should be based upon reducing regulation across the board, rather than imposing stricter rules industry-wide.

  • Reduce taxes on wireless services. Over the past five years, the cost of the average wireless plan has fallen more than 30 percent. However, state and federal taxes, fees and mandates are keeping consumers’ wireless phone bills artificially high. Nationwide, the average consumer pays 14.3 percent of their cellular phone bill in taxes. Local fees and special taxes on wireless service should be eliminated.

  • Privatize government telecommunications services. Municipalities and government-run institutions should be prohibited from owning, operating or managing a telecommunications service. Consistent with sound budgeting, government agencies that use the broadcast spectrum should contract with the private sector to provide communications services, enabling agencies to take advantage of integrated digital communications without making costly infrastructure investments of their own.

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Diane S. Katz is director of science, environment and technology policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.