Digital Policy Institute

Telecom reform in the states: Will Indiana be in the race?

Telecom reform in the states: Will Indiana be in the race?
EVANSVILLE COURIER PRESS February 1, 2006

By Dr. Robert E. Yadon, Indiana Policy Review

Indiana is at a crossroads when it comes to telecom reform. All of us, know it or not, are involved in a race with other states to demonstrate to investors that we recognize the economic need to deregulate our outdated system.

Among other things, investors will want to know how Indiana handles the issue of uniform, statewide franchising of video services.

To date, local governments have granted cable franchises under state-granted "home rule" powers. This permits the wiring of a municipality with aerial or buried cable using public "rights of way," and the collection of a franchise fee, capped by the federal government at five percent. Federal statutes do not specify how the franchise fee is to be used. When cable stood alone in each market in the provision of subscription video service, and was also regulated at the local level, this concept made sense. Today, circumstances have changed and the idea of local franchising of cable television systems is a relic.

Why? By legislative mandate, the federal government has preempted virtually all local regulation of cable television service. In short, there is no longer a need for local franchising of video services other than to guarantee collection of a franchise fee and to preserve the right of each municipality to regulate "rights of way." For the sake of efficiency, SB 245 streamlines that process by providing new, competing video service providers with the ability to enter Indiana markets under a statewide franchise that sets the fee at the federally mandated cap of five percent.

In fact, Senator John Ensign (R-NV) and Senator John McCain (R-AZ) have introduced a bill to: a) establish a market-driven telecommunications marketplace; b) eliminate government managed competition of existing communication services; and c) provide parity between functionally equivalent services.

Many states, however, are not waiting for federal intervention in the telecom reform movement. If successful, Indiana would join with the 14 other proactive states that have already crafted new telecommunication legislation. Two of the surrounding states (Michigan and Ohio) were among those that passed telecom reform legislation last year. And Missouri, like Indiana, has introduced new legislation this year called the Fair Competition in Video Act, to allow new video subscription service providers a statewide franchise.

There are a few common themes among those states that already have passed new reform legislation:

Texas — Statewide franchising of video services last year was an efficient way to handle all competing media. The impact was nearly immediate as Texas cable rates decreased by as much as 25 percent where direct competition was encouraged and subscribers finally had a choice.

Michigan — Regulations were restructured to focus on price and quality of service and not on the specific provider. They also encouraged the introduction of new services, entry of new providers, development of new technologies, and an increased investment in the telecommunication infrastructure.

Ohio — Highlights included an increased reliance on market forces to support a competitive telecommunications market, prohibition against state jurisdiction for advanced services on internet protocol-enabled services as defined by federal law, required consideration of the impact of regulation on competing services, that regulation not advantage nor unduly disadvantage providers of competing equivalent services, and encourage innovation in the telecommunications industry.

If all this sounds familiar, Indiana Sen. Brandt Hershman has addressed the majority of issues captured in legislation already passed in other states. Where Indiana excels is in providing the necessary property tax abatements to encourage new infrastructure investment in a timely fashion.

Finally, the threat of future telephone rate increases as a result is speculative at best. Prior to divestiture, there was no competition in wireline services for residential customers. Cable was limited to the provision of video entertainment, there were no cellular telephone firms, the Internet was limited to military and research university applications, and VoIP wasn't even an acronym.

Indiana indeed is at a crossroads, but the legislative road is well lit. Senator Hershman has provided a roadmap. It's time to enable all in Indiana who desire to compete in the information economy with that opportunity. Let's attract new firms, generate more jobs and keep our best and brightest right here in Indiana. Indiana was the first state to regulate telecommunications back in 1885. Let's also be one of the first to deregulate this industry.

Our legislature needs to be tough and reject opposition rhetoric that is protectionism at best, and anti-competitive at the outside. It's about the information age, it's about new commerce, but most of all it's about the future of Indiana, and it's about time.


Robert E. Yadon, Ph.D, is a senior research fellow in the Digital Policy Institute at Ball State University, is a professor of Information and Communication Sciences and the director of the Applied Research Institute. Contact him atryadon@bsu.edu.ryadon@bsu.edu