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CONTACT: Patrick Ross
December 17, 2004
(202) 289-8928

States Must Update Communications Laws
Gifford, Peters Offer Model Act Language to Legislators

WASHINGTON D.C. - State regulatory regimes for communications services are "no longer sustainable," Progress & Freedom Foundation President Ray Gifford argues in a new study. Given the development of new technologies and intermodal competition, legislative change in the states is needed, Gifford and PFF Research Fellow Adam Peters have written a Model State Act for Communications. "We hope this Model Act provokes a critical inquiry into the widening gulf between the reality of today's communications marketplace - which is characterized by multiple networks capable of supporting a variety of competing services - and laws designed to regulate a single network optimized to provide traditional telecommunications services," Gifford said. Gifford is presenting the Model Act today in Chicago at the Heartland Institute Telecom Reform Conference.

Despite billions of dollars in investment by existing and new competitors and the development of breakthrough technologies, competition is stunted in states through price signals that give false incentives to enter some markets and not to enter others, Gifford and Peters argue. This drives consumers toward artificially underpriced services and away from artificially overpriced ones. The Model Act also makes clear there is no reason to engage in economic regulation of new services and markets.

Gifford and Peters write that states should shift from a "mother may I?" regime of requiring permission from industry to a "wait 'til your father gets home" approach allowing free entry, exit, pricing and product flexibility, with intervention only in the case of fraud.

"Two terms you will not find in this Model Act," said Gifford, former chairman of the Colorado Public Utilities Commission, "are 'public interest' and 'just and reasonable.' Those standards are simply too capricious to have a meaningful or stable definition, and the Damoclean sword of 'public interest' and 'just and reasonable' scrutiny needs to go away in the multi-mode, competitive marketplace."

Just as the U.S. Congress plans next year to begin a rewrite of the Telecom Act of 1996, so are state legislatures beginning to re-examine their own role in communications regulation. That's only natural, given that modern communications networks do not match neatly with traditional conceptions of state law and state jurisdiction. The PFF Model Act proposes several guiding principles:

  • Consumer empowerment - The Model Act should create a regulatory environment empowering well-informed consumers to choose between and among service providers and technological platforms, while paying cost-based prices for those services that they actually use.
  • Public safety and consumer protection - Affirming the need to ensure consumer access to 911 services and the disabled, a balance needs to be found between the social good of 911 services and potential barriers against emerging technologies.
  • Equity - Like services should be treated in like ways.
  • Unregulation of new technologies - A "hands-off" approach is needed to create incentives for development and deployment.
  • Unregulation of competitive services - With increases in intermodal communication, the economic regulation of competitive local exchange carriers, interexchange carriers, wireless, cable telephony and VoIP providers is unwarranted, as is, subject to certain exceptions, before-the-fact regulatory oversight of incumbent local exchange carriers.
  • Market incentives for investment and innovation - State oversight of communications should ensure that those who make the right bets on technology are allowed to profit commensurate with their risk.
  • Affordable, universal access without regulatory arbitrage - "Universal service" remains an animating purpose of regulation, but states should ensure a low cost, basic service package to all consumers in a manner that is transparent and free of arbitrage.
  • Minimization of entry barriers and administrative oversight - Arduous entry and reporting requirements do not comport with the operation of a competitive market, and entry barriers discourage deployment of new technologies.

While encouraging state regulators to rewrite state communications laws to recognize a new era of competition, the Model Act does not recommend changes to the institutional structure of state commissions as they exist, nor to the basic tenets of state administrative law.

"This Model Act is limited to the core elements of a forward-looking statute intended for the digital age, into which we have already entered" Gifford and Peters write. "State law has its province and for the foreseeable future will play a large role as the nation works out the laws that pertain to communications." The Model Act's proposed statutory language, complete with explanatory notes, is available on the PFF web site.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation