Regulatory Issues and Market Structure

Background

The main objective of the Telecommunications Act of 1996 was to bring competition to the telecommunications market in order to give consumers more choices and promote their economic well-being. This potential benefit to consumers depends on the likelihood that they can and will switch service providers. Competition for customers should theoretically put pressure on providers to lower prices, invest in service improvements, and develop new capabilities. Unfortunately, 20 years after the act’s passage, the telecommunications industry still lacks vigorous competition and meaningful consumer choices.

After passage of the 1996 law, many observers expected that large providers of local telephone service (the “incumbent local-exchange carriers” or ILECs) would move into one another’s service territories and compete for customers. The reality has fallen short of expectations, however, as consumers often have only two options for home phone service: their incumbent phone company and their incumbent cable company. This insufficiently robust competition has not motivated carriers to keep prices down.

Some competitive offerings are available for residential customers, but they exist primarily for high-end consumers who buy bundled services. When customers want only basic service (on which many people with fixed incomes rely), competition is virtually nonexistent. This is because basic services produce the lowest profit margins for providers. Bundled offerings and basic service are not equivalent; for example, a $50 bundle that includes basic local telephone service is not a reasonable substitute for $10 stand-alone service. Furthermore, bundled offerings do not constrain rates for basic service; on the contrary, they create an incentive for ILECs to raise rates for stand-alone services and thus encourage migration to multiple-service packages.

The largest telecommunications carriers are urging state regulators to release them from many of their responsibilities and requirements as public utilities, including the obligation to provide basic stand-alone wireline service to all parts of their territory. Known as the carrier of last resort (COLR) requirement, this obligation has helped to ensure that people in rural, remote, and poor communities have affordable telephone service. In more than 20 states, legislatures have enacted laws limiting state regulators’ ability to develop and enforce rules for telecommunications carriers; about half of these states have reduced or eliminated the COLR obligation. Allowing telephone companies to abandon basic wireline service in places where it is less profitable could have dangerous consequences for consumer health and safety.

Regulatory Issues and Market Structure: Policy

Accessibility to telecommunications services for all consumers

In this policy: FederalState

Policymakers should ensure that all consumers have affordable, reliable, and high-quality access to essential telecommunications services in their residences, regardless of where they live.

Policymakers should ensure that all households have access to basic local phone service from a carrier of last resort (COLR), and that any designated COLR retains these traditional and vital responsibilities until another carrier or carriers are designated as the COLR.

When legislation or rulemaking relieves any incumbent local-exchange carrier or successor service provider of COLR obligation, measures should be adopted to mitigate consumer harm.

Policymakers should retain essential consumer protections for all voice telecommunications service, regardless of the platform technology used to deliver the service to ensure that all consumers have a choice of options that provide a minimum level of high-quality and affordable service.

Safeguarding minimum service and consumer choice in telecommunications

In this policy: FederalState

Federal and state policymakers should ensure that consumers always have the option to purchase only the services they want or need by preventing telecommunications providers from requiring subscribers to purchase one service (such as broadband Internet access or cable television service) in order to obtain another (such as local telephone service).

Policymakers should ensure that all consumers have the option to subscribe to stand-alone basic telephone service with monthly rates that are just, reasonable, and affordable, and without contracts or unfair early termination penalties.

Ensuring effective competition among telecommunications service providers

In this policy: FederalLocalState

Where laws or regulations rely on competition to protect or advance consumer welfare in communications markets, policymakers should ensure:

  • true and effective competition to the fullest extent possible, with benefits to residential consumers in the form of lower prices and better-quality service;
  • appropriate consumer protections to address ineffective or insufficient competition; and
  • continuing regulatory authority and oversight to make certain markets remain competitive.

Federal and state policymakers should first establish clear standards for effective competition that include at a minimum:

  • a range of accessible, comparable, and useful consumer options at just, reasonable, and affordable rates;
  • just and reasonable distribution of the benefits of competition across all residential consumer groups, including consumers with low incomes and rural consumers;
  • low switching barriers, to ensure consumers are unimpeded in their ability to change service providers; and
  • clear, reliable, and meaningful price and service-quality information that is easily accessible and comparable across providers.

Policymakers should monitor service-provider performance and vigorously enforce promised sanctions if performance falls short of the standards for effective competition.

Policymakers should monitor the development of competition and introduce strict regulatory controls—or reconsider any regulatory flexibility they granted on the premise that competition was emerging—if promises or predictions regarding effective competition, prices, service quality, reliability, and overall consumer protections are not realized.