Senate Bill Would Revive Telephone Price Controls

For Immediate Release

MIDLAND – The first bill before the new Michigan Senate, a proposal to revive price controls in telephone service, would undermine state and federal efforts to deregulate telecommunications and invite a protracted legal battle that Michigan taxpayers could ill afford, according to Diane Katz, director of science, environment and technology at the Mackinac Center for Public Policy in Midland.

"Government interference in the telephone market is precisely what kept rates artificially high for decades," said Katz, who notes that a decade ago the Legislature rejected as obsolete the same sort of price controls as those now being proposed.

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 the new legislation would require telephone companies to seek approval from the Michigan Public Service Commission (PSC) for any "common-line" charge.

Proponents say they are only attempting to secure rate relief for consumers. But Katz said that even if rate regulation could somehow be justified, the approach prescribed in the new Senate bill, sponsored by Sen. Gerald Van Woerkom, R-Muskegon, is utterly flawed. "The legislation directs the PSC to determine a company's 'reasonable rate of return' in setting an acceptable 'common-line' charge. While this might have been possible a decade ago, when all components of a monopoly provider's revenue were tightly regulated, Congress and state legislatures have deregulated most telecom rates in recent years. The PSC cannot accurately project a company's earnings today since those earnings will fluctuate as competitive forces constantly reshape the market. This is precisely why the Michigan Legislature eliminated 'rate of return' regulation as impractical in 1991."

Moreover, the 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," Katz said. This opens the possibility of protracted legal proceedings that could wind up costing taxpayers far more than lawmakers anticipate. Indeed, telephone company executives have told Katz they are fully prepared to launch a legal challenge should the legislation become law. A similar attempt by the Legislature in 2000 was quashed by the Sixth Circuit Court of Appeals.

"Rather than invite costly litigation, lawmakers would do well to further deregulate telecommunications services rather than reinstitute the very regulation that has consistently failed to benefit consumers."

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Contact: Diane Katz, Director of Science, Environment and Technology Policy,(313)378-6986.