Telecom Act spurs requests for regulatory relief. UNEs drive initial competition, then go away. Intermodal competition (wireless and cable) grow. Are the rising prices the result of rising costs, or the result of the exercise of market power? If costs are rising, say due to the elimination of scale economies, then “competition and deregulation” is a questionable policy. If market power is being exercised, then “competition and deregulation” is a failed policy. If both, then competition and deregulation is a failed policy. Policy Objectives: Innovation. Investment. “ Just and reasonable” rates. Prices that reflect the cost of production. No undue discrimination.
Why are these prices rising? Are the three sources of competition identified by the CPUC doing their job? CLEC and UNEs Wireless Cord Cutting VoIP
CLECs provide a very small number of access lines. CPUC reports the top 40 CLECs in the state based on access lines. From this list, only MCI makes the top 40 (but CPUC list does not distinguish between business and residential). Outside of low-income households (phonesharks) CLEC industry does not do much push advertising.
Can wireless constrain ILEC price increases? Two red flags: (1) Wireless plans are more expensive; (2) AT&T and Verizon, the two largest ILECs are also the largest wireless providers—unlikely to compete against themselves. Data shows that 77% of all HH, and 79% of households that choose to have a telephone still purchase wireline service. Evaluated NHIS survey data on cord cutters. 29000 families surveyed about aspects of phone usage, and demographic and health information. Results show that overwhelming majority of HH’s still maintain a wireline telephone, and that the majority of HH use both wireless and wireline. Some substitution, no doubt, but given nature of wireless plans, not sufficient to restrain ILEC pricing, especially for stand-alone services. Theory—wireless is a close substitute for wireline. If so, then in a large population of consumers, there should not be statistically significant differences in population’s use. For example, it would be surprising to find that there were statistically significant differences in consumer characteristics among those who eat at McDonalds and Burger King.
Cable companies typically don’t offer stand-alone voice. Bundle prices are well above stand-alone services. Bundle “competition.”
Regulatory Response to Rising Residential Rates Trevor R. Roycroft, Ph.D. Presented at the 2009 NASUCA Mid-Year Meeting June 30, 2009 Phone Bill [email_address] 508-896-0151
Residential CLECs Still Operating in California CLEC Prepaid-Only? Lowest Basic Rate Unlimited Bundle ACN Communication Services No $25.94 $38.99 Asian American Association No $24.95 Blue Casa Communications No $27.99 $49.99 Budget Phone (Budget Prepay) Yes $49.95 Connectto Yes $27.99 $54.95 Curatel Yes $14.40* $29.40 dPi Teleconnect Yes $39.99 $56.99 EarthLink No $49.95 $69.95 Excel Communications No $39.95 $59.95 MCI No $41.99 $59.99 Midwestern Telecommunications Yes $35.29 $40.29 Phoneco Yes $29.99 $37.98 PNG Telecommunications (Powernet Global) No $21.99 $39.99 Sage Telecom No $24.99 $39.99 TC Telephone No $16.99 $49.99 Telscape No $24/$28 $47/$53 Trinsic No $59.68 *Price for LifeLine eligible customers. This price is roughly double the LifeLine rate available from an ILEC.
Cord Cutting—General Substitute or Niche Market? Summary of Statistical Analysis of Wireless-Only Choice Variable Increases or Decreases Chances of Wireless Only? Significance Level
Number of Cell Phones in HH
Number of Individuals in the HH
Number Under Age 18 in the HH
Number Over Age 65 in the HH
Number in HH that need help with chores
Number in HH that have trouble walking
Number that received homecare
Number using telephone for health info
Male HH Head
Hispanic HH Head
Non-white HH Head
Age of HH Head
Higher HH Income
Chi Square of the Regression: 6,508; Significance Level 0.00
**Significant at 1%.
*Significant at 5%. † Significant at 10%. NHIS Survey July-December 2008. Households With: Both Wireless and Landline Landline Only Wireless Only No Phone 59.60% 17.40% 20.20% 1.90%