Leaving Well Enough Alone:
State Wireless Regulations Could Harm Consumers
2007-27
Of all the technological inventions over the last two centuries, none seems to have penetrated American households as profoundly as the wireless telephone. It took more than 90 years for landline service to reach 100 million consumers. It took over 21 years for 100 million consumers to buy a color television. But in less than 17 years wireless phones had reached 100 million consumers.
The dominance of traditional wireline phones (think Ma Bell) is quickly eroding. At the end of 2006, an estimated 13% of US households had switched their phones to completely wireless. In June of 1995, 28 million Americans had a wireless phone; exactly twelve years later that number has risen to 243 million.
By 2011, it is estimated that fully one-third of all Americans will have dropped their traditional wireline service in favor of wireless services. Among the wireless services is emerging technology such as Unlimited Mobile Access (UMA), Wi-Fi connections, femtocells, WiMax connections and Voice Over Internet Protocol (VoIP).
Because the traditional wireline services took so long to reach the number of customers that wireless services reached in only a handful of years, some policymakers think that government regulators should take a similar approach to regulating the wireless industry as they did when governing the Bell monopolies of the previous century.
Since the monumental 1996 Telecommunications Act, the number of wireless subscribers has expanded more than eightfold. Wireless minutes of use have increased almost 5000%, from 17 billion in early 1995 to more than 857 billion in early 2006. Wireless companies have invested almost $190 billion in capital since the 1996 national regulatory framework legislation.
All these statistics show that a responsible regulatory environment can enable the proliferation of wireless technology, to reach a broader audience while driving down the cost. Former Federal Communications Commission economist Thomas Hazlett noted that the wireless “industry has gravitated towards national networks because of economic efficiency, not due to regulatory constraints or path dependency.”
Similarly, the Phoenix Center says that “Because extra-jurisdictional effects in wireless communications are likely to be present and in many cases significant, the regulation of wireless communication services, to the extent there is any, should have a national bias.”
The 1996 Telecommunications Act is supposed “To promote competition and reduce regulation in order to secure lower prices and higher quality of services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.” Unfortunately, efforts are underway to change the current national regulatory framework towards something more locally based. At the outset this may seem like a fine idea as “local control” is always a popular angle. But is it truly wise to have a nation-wide industry to be directed by up to 50 different sets of regulations?
Examples of well-intentioned but ultimately damaging regulatory proposals include California, where there is a movement to enact a telecommunications law that would regulate font size, so bills would be easier to read. This type of policy, though well-intentioned, is an example of a policy creating unintended consequences.
Ultimately, regulators and policymakers must grapple with the fundamental question, “what kinds of regulations on the wireless industry are absolutely essential?” Regulators must do so while keeping in mind that any regulation is a natural impediment on the industry and while there is a possibility of actual consumer protection, there is also the possibility of turning the regulation into a binding principle that damages both the business and consumer.
The 1996 Telecommunications Act was carved around two carefully thought-out principles regarding regulatory philosophy. First, economic discipline by market forces should be the first option, as opposed to economic discipline meted out by regulation. Second, economic regulation should be presumed unnecessary unless there is credible evidence that market discipline is being abused to the detriment of the consumer and cannot be corrected outside of the regulatory process.
Currently the wireless telephone industry is very competitive, regulated responsibly, and consumers and the industry overall benefit greatly. The fact that wireless phone services and technology has exploded in the past ten years is evidence of responsible regulation. And largely because of the competitive environment, overall customer satisfaction with wireless services continues to improve.
As more households at all income levels adopt a wireless-only model for telephone service, state regulators must refrain from adopting a similar regulatory structure that was imposed upon the wireline industry. The wireline industry was monopolized by Ma Bell but today the United States has over 150 wireless providers and several of them have been providing broadband speeds. Consumers do not face the same limited choices that traditional wireline telephone systems presented in decades past.
Washington state should to continue to accept the current national framework for wireless telecommunications regulation. Regulators should be wary of the often well-intentioned, but economically inefficient unforeseen consequences that can harm burgeoning industries and consumers alike
The number of people using wireless phones continues to climb astronomically while replacing traditional wireline services. Policymakers should resist placing regulations that block entry of new wireless service providers and stifle innovation.
To be sure, the evidence shows a competitive marketplace for wireless services is good for consumers and the entire industry.
Carl Gipson is director for small business and technology at Washington Policy Center and Trevor Cross is a research assistant. WPC is a non-partisan public policy research organization in Seattle and Olympia. Nothing in this document should be construed as any attempt to aid or hinder any legislation before any legislative body.