18. How can telecommunications policy be improved?

End forced access. The growth of wireless service, cable telephony and Internet communications presents a formidable competitive challenge to wireline incumbents. Taking into account these service options, there is little justification for maintaining the forced-access regime. Service providers should be allowed to negotiate network access on mutually beneficial terms.

At the very least, limits should be set on competitors’ use of forced access. Technological innovation can radically change market conditions in a short time. Competitors who take advantage of subsidized access should be required to undergo a periodic review of eligibility. Whether they make any attempt to invest in independent facilities, as Congress intended, should be taken into account.

Rate deregulation. Price controls on network access distort competition and inhibit investment. Competitive pricing would actually impose tougher price discipline on firms than rate regulation. Service providers should be allowed to negotiate wholesale access rates, move to a “bill-and-keep” system or enter into other arrangements.

Short of full-scale deregulation, access rates should be adjusted to fully and flexibly reflect the actual costs of network services. New rates must not impose the cost of subsidizing rivals on incumbent service providers, and regulators should factor in the advantages that a competitor would gain by building an independent network.

Reform universal service. To the extent lawmakers regard universal service subsidies as necessary, market-based approaches would prove less harmful. For example, auctions could be held for the right to provide a “safe harbor” for low-income customers. Means testing should be applied to customers, rather than service providers. Finally, “implicit” support should be made “explicit,” so that consumers can see the charges on their bills and hold legislators and regulators accountable.

Avoid regulation of new services. Encouraging innovation requires maintaining a regulatory “firewall” between traditional phone service and new services like Internet telephony. Absent other regulatory changes, this approach admittedly would be unfair to traditional carriers, who are taxed in ways net-based competitors are not. But the alternative is to entangle a nascent sector of the communications industry in price controls and onerous regulation. Preserving the freedom of this new sector will ultimately benefit consumers more. The best way to “level the playing field” is to reduce taxes and regulations on incumbent carriers as well.

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. To the extent regulation is deemed essential, lawmakers and regulators should focus only on services, not on service providers.

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 14.29 percent of their cellular phone bill in taxes. Local fees and special taxes on wireless service should be eliminated.

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