Why NOT Deregulate Qwest?

A little-publicized bill discussed during the recently-completed legislative session involved the deregulation of Qwest’s basic retail services. Senate Bill 37 was introduced by Sen. Cisneros and would have eliminated Public Regulatory Commission jurisdiction over the regulated telecommunications provider’s rates and terms for basic land-line services if it found “effective competition” in more than 50 percent of the provider’s market area, or if it has lost more than 33 percent of its land lines since 2001.

Sounds reasonable enough, right? After all, people — even living in rural areas — have many different phone services to choose from. Cell phones and cable providers are just two options, but when it comes right down to it, why should the PRC tell Qwest how much they can charge their customers? People who choose to live in far-flung, difficult to server rural areas should bear the extra costs associated with serving them, right?

Unfortunately, Sen. Lovejoy, PRC Commissioner Jason Marks, and apparently, several unregulated telecommunications providers, opposed the effort and the bill died. Sen. Cisneros has threatened to, rather than deregulating Qwest, attempt to bring these other telecommunications providers under regulatory control of the PRC. Hopefully, this is just a threat meant to neutralize the misguided opposition lobbying of these providers. New Mexico policymakers, wherever the market makes it possible, should be attempting to strip the PRC of its regulatory powers. This is because markets are far more efficient in terms of setting prices and “regulating” the marketplace than any politically-controlled regulatory agency.

Don’t give up Sen. Cisneros!

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3 Replies to “Why NOT Deregulate Qwest?”

  1. Telephone communications are a public good, and benefit from “network effects,” i.e, the more individuals and businesses on a telephone network, the more valuable that network is to it’s existing members. That’s why, in the old days when the only technology at hand did not allow for competitive telephone services, “we” created a regulatory system that telcos would get service territory monopolies in return for undertaking the obligation to provide equal service throughout that territory. The phone companies were also guaranteed the opportunity to recover their costs of service plus a fair return on their capital investments.

    Qwest Corporation bought U.S. West in 2000, with the full knowledge that it was acquiring highly regulated telephone companies in New Mexico and other states. It chose to be in this business model. And thus, it has no entitlement to deregulation as a matter of fairness.

    Today, technology permits cost-effective competition for telephone services in many markets. As a matter of economic efficiency (not fairness), we ought to move regulation of companies like Qwest to a market-driven model in those competitive markets. This is possible under the existing NM statutory framework, and I would like to see such initiatives move forward. What Qwest appears to desire, however, is across-the-board deregulation that will leave it as an unregulated monopoly in many geographic/service category markets.

    To put it another way, Qwest says it wants to compete. Well, companies in competitive markets that want to keep or increase market share do so by offering more value through things like better quality of services, lower prices, and/or new and better services. Qwest doesn’t need the law changed in order for it to offer better quality or lower prices, the only things it really needs a law change to do is charging more than the PRC would allow, providing lower quality of service, or making smaller investments in new services.

    You argue that higher prices for basic residential service (a non-competitive service statewide today) and worse service for rural areas may be justified, and while there may be something to that point of view, why shouldn’t consumers be entitled to continue to receive the benefit of the regulatory bargain that was struck long ago? Is the theory behind sanctity of contract only applicable when it benefits a large corporation?

    We should continue to use an evidence-based approach to determining when sufficient competition has arisen (or is possible) in the various urban and rural markets in our state, and at that point, remove price and quality of service regulation for those competitive markets.

  2. I’m willing to bet that Mr. Gessing lives in Albuquerque, with easy access to inexpensive high-speed Internet. I live only 15 minutes outside Albuquerque, and even this close to a major metropolitan area, we decidedly do NOT have access to “many different providers” – not even cable.

    Qwest has failed to honor its contractual obligation to upgrade rural telecommunications in New Mexico, yet still retains the benefits of a virtual monopoly in most of the state.

    While Qwest continues to seek rate increases – both openly acknowledged rate increases and hidden price hikes, as in the case of HB 107 – it has failed to meet at least $200M of its upgrade commitment, and reduced its costs by reducing service quality, refusing to expand service areas and laying off employees.

    At the same time, our tax dollars are being deployed to pay for Qwest’s service shortfall. For example, $10 million of federal stimulus money will be used to provide broadband Internet access to 4,700 square miles of the Penasco Valley.

    Do the math: Qwest owes us 20 times this amount. Were Qwest to honor its contract, at this rate broadband Internet could be provided for over 94,000 square miles of rural New Mexico (the entire state is only 121,593 sq mi), and these 10M tax dollars could be spent on other equally urgent projects in New Mexico.

    If this is the service level Qwest provides under at least some constraints of regulation – remember the multi-day, multi-county service outage in December? – then I can’t imagine how bad it would get without regulation.

    So I wholeheartedly support Jason Marks’ attempts on the PRC to protect all the consumers of New Mexico, including us country folk living on the wrong side of the digital divide.

    1. The proposal in question was just for “basic land-line services.” So, I believe this is related to telephones which have many replacements, most notably cell phones. Now, I’m not going to say that Qwest or any of these telecommunications companies will not engage in rent-seeking behavior at the drop of a hat, but I will say that there is no reason for urban customers to subsidize rural ones. There are a lot of services that cost more based on having to be transmitted/extended to rural areas. It is simply unfair to force urban customers to subsidize rural ones (or vice-versa).

      My understanding, however, is that the deregulation issue was not related to internet services.

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