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Let Competition Race Into Texas 

Progress Snapshot
Release 1.8 August 2005

By Kent Lassman *

A brand-new NASCAR Nextel Cup Series race, the Dickies 500, is coming this fall to the Texas Motor Speedway. But it's not just race car drivers looking to come to Texas. If Governor Perry signs a landmark reform bill currently on his desk, racing and non-racing fans alike will see a rush of new investment in communications spread across the state at speeds Tony Stewart would find dizzying.

While meeting in a special session, the state legislature approved Senate Bill 5, a bill designed to open the state up to more competition and provide Texans with more choices. The horse trading necessary to produce the bill involved compromise. But the effort put Texas ahead of the rest of the country and contains numerous provisions that will bring quick benefits to consumers.

Residents across the state could soon have another choice of video providers thanks to Senate Bill 5. The legislation contains a streamlined process for new video entrants that maintains consumer-protection measures while sparing the entrants the time and cost of obtaining a new franchise in every Texas city and town. That means new providers could start laying down the infrastructure for services in weeks, not years. New entrants, such as telecom companies providing video, will be able to compete without restriction on price against cable and satellite providers.

Those telecom and cable companies also could be facing more competition in the broadband Internet market. A new technology known as broadband over powerline (BPL) could be offered by utilities as another broadband pipe into the home, and the bill would speed that process along by preventing overly burdensome right-of-way obligations. Like the new video providers, BPL providers also would be free to compete with incumbents on price.

In fact, this repeated recognition of the phenomenon of downward pressure on prices in a competitive market is a keystone of this bill. We see it every time we look at dueling Sunday circular flyers, but the legislators should be commended for recognizing an economic fact that is too often lost in the heated rhetoric of capitol hallways.

Government oversight on price in this bill is tiered. Large markets where multiple competitors are squaring off in communications services would be freed of price regulation within months. Mid-sized markets would also see price deregulation of traditional telephone service after three competitors are in the market.

As a safeguard, communities with less than 100,000 would remain under the authority of the state utility commission, which could step in to protect consumers from large price changes if there is evidence of market failure. In addition, a price cap would be in place for elderly consumers purchasing basic services.

The legislation also seeks a more efficient distribution of universal service money, meaning that tax -- for lack of a better word -- that's on your phone bill every month. Universal service is a noble aim but there are gross inefficiencies in how that tax revenue is distributed. The state utility commission would be asked to look for improvements, and service providers in the most expensive and remote areas of Texas would be free to use any technology -- BPL, wireless, satellite -- that could provide consumers with basic phone service at a lower cost.

Could Senate Bill 5 have been better? Of course. The streamlined process for statewide video franchises could have been offered to all providers immediately and not just to new entrants. On universal service, the bill could have more explicitly directed the utility commission to propose market-based systems like reverse auctions to reform the flawed program.

But what a great thing it is for Texans to find themselves only wishing one or two more provisions had been in their bill. Consumers in other states haven't yet had a legislature pass such a consumer-empowering piece of legislation. You can almost sense the buzz in the air as potential communications providers large and small wait impatiently for the signal to start the race. Perry's pen has become the starter's flag.

* Kent Lassman is a research fellow at The Progress & Freedom Foundation a market-oriented think tank that studies the digital revolution and its implications for public policy. The views expressed here are his own and do not necessarily reflect those of The Progress & Freedom Foundation, its officers or Board Members.



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