1) Regulatory reforms have benefited consumers for most telecommunications services except for local residential rates, which have remained stagnant. 2) Incumbent local exchange carriers subsidize their basic local rates through high intrastate access charges and fees for additional services, distorting the telecommunications market. 3) Reforms are needed to remove cross-subsidies, reduce access charges to interstate levels, and target universal service funding to avoid further distorting consumer choices and rewarding increased costs.

1. Texas Telecommunications: Everything’s Dynamic Except the Pricing Jerry Ellig Senior Research Fellow Mercatus Center at George Mason University Prepared for the Texas Public Policy Foundation Policy Orientation for State Legislators January 2005

4. Long-distance competition legal in late 70s

6. Cell phone subscribers outnumber incumbent telcos’ customers 9.16 13.54 2.17 11.37 2001 11.33 10.13 Mobile wireless 12.54 12.95 Total wireline 2.27 2.18 Competitor wireline 10.27 10.77 Incumbent wireline 2003 2002 Texas Subscribers (millions)

7. Internet prices continue to fall

8. Broadband continues to grow

9. Local residential rates stagnate (frozen by law in 1995)