Op-ed: Innovation lost and found

Op-ed: Innovation lost and found

Posted: Friday, March 25, 2011 8:02 pm
By: Bartlett D. Cleland, Special to The Press

Some people have a hard time adjusting to change.  The pace of change is particularly fast in the communications industry — whether video, voice or Internet access. In this highly competitive industry, the challenge is to fend off stiff competition, please demanding consumers, and adjust to the ever-changing technological landscape with enormous regular and routine investments. But some companies have a hard time adjusting to change, and instead of competing rely on  siphoning money away from others. 

Tennessee is currently in the middle of a debate about “access fees,” the outcome of which will affect  the Volunteer State’s economic and technological future, a choice between innovation or continued subsidy. 

Access fees, the general issue under debate, are the fees paid by a long distance company to a local phone company to compensate the local carrier for use of its networks.  For example, someone in St. Louis, Mo. calls a friend in Clarksville.  When the call reaches Clarksville it is handed off to a local carrier to deliver the call to the home.  In Tennessee AT&T is most often the local company, some are small rural carriers (often worth  millions of dollars) and some are like TDS, a multi-billion dollar, 7 million customer Fortune 500 company. 

Specifically, the dispute is over how much the long distance carriers should pay the local carrier to use its network to deliver the communication. Or put another way, the fight is over how much wealth is redistributed from one company to subsidize another, like TDS.  Effectively this is corporate welfare. 

Carrying those calls does cost something. But as a relic of monopoly-era government price setting, these intrastate access fees are currently set much higher than costs. And it’s inner-city and suburban long distance customers that end up bearing the burden of this higher fees and subsidizing local phone carriers. 

So the sensible thing to do is to charge the same parity access rate whether the call is from in state or originates out of state, and require that the fees not exceed necessary compensation for the origination and termination of calls. 

This would end a hidden tax on Tennessee consumers. It should also encourage Tennessee phone companies to invest in their own networks, driving innovation and jobs, instead of paying subsidies to other companies.  

But the local carriers want to set up a slush fund, a new tax to create a perpetual subsidy to line their pockets while draining money from citizens.  Frankly, if a subsidy is needed to serve certain customers then it should manifest as a direct subsidy to the customer that they can then use to shop the free market, instead of a hidden tax on everyone. 

The proposal in front of the Senate, to be voted on Thursday, does not create yet another fund and begins a five year phase out of the existing subsidy — a great step in the right direction. 

The bad old monopoly days of communications are over. It’s time to remove leftover relics like high access charges, and make all providers of communications compete in the marketplace instead of providing them with perpetual subsidies. 

The winners will be Tennessee consumers, who will no longer be subsidizing local phone providers, and will see even more benefits from today’s competitive communications marketplace.  

Let’s hope the Senate does the right thing and that the House votes, too, for innovation. 

Editor’s note: Bartlett D. Cleland is director of the Institute for Policy Innovation (IPI) Center for Technology Freedom.

wcp 3/24/11

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