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Newspaper Article

    Phone Legislation Passes Committee

    BY Martin DeAgostino
    02/15/2006

    INDIANAPOLIS -- Higher telephone rates may be on the way under legislation that cleared a Senate committee 9-1 on Tuesday.

    But proponents say all Hoosiers will benefit as telecommunications firms apply the new revenues to broadband systems capable of delivering voice, video and Internet services in desirable bundles at competitive prices.

    "Your choice goes up and your cost goes down," predicted Sen. Brandt Hershman, R-Monticello.

    Hershman is the chief Senate sponsor of telecommunications deregulation, which the House also has backed. Amended versions of both bills closely track each other and include these major provisions:

    Use of statewide video franchising to ease new companies' entry into local cable television markets. They would compete with cable TV companies that hold near-monopoly franchises.

    Phased-in price deregulation of basic telephone service over three years, under certain conditions, followed by total price and quality deregulation under the same conditions.

    Prohibition of state regulation of advanced broadband services, voice-over-Internet phone service and commercial mobile radio service.

    Proponents include big and small phone companies that see the opportunity for new markets, especially video franchising, which will pay the bills to expand their broadband networks.

    But organized labor also backs deregulation, which it hopes will add new jobs as companies reach new markets and replace copper lines with fiber optic lines.

    "This is all about giving Indiana citizens and businesses the communication tools they need to compete in a global economy," said Bret T. Swanson, a senior fellow for the Discovery Institute, a pro-deregulation think tank based in Washington, D.C.

    Indiana consumer activists disagree. They say price and quality deregulation of basic phone service will serve corporate interests at consumer expense, without guaranteed investments for Hoosier customers.

    "This is what folks count on to be able to stay connected," said June Lyle, of AARP Indiana.

    As proposed, the monthly rate for basic phone service could rise by $3 by 2009 -- a $36 annual increase at the maximum rate.

    Providers also could raise rates by telephone exchange -- the first three digits in your phone number -- without raising them throughout their service territory.

    In return, the legislation requires companies to provide broadband access to at least half the households in each exchange.

    Hershman and others say that will ensure wide geographic access to broadband, instead of access based on population density.

    They also say the buildout, combined with enhanced opportunities to sell video products, will drive down prices for video services, including cable TV.

    Consumer groups challenged that assertion, based on the dominant market position of a few giant phone providers.

    Grant Smith, executive director of the Citizens Action Coalition, said the country's largest broadband and telephone provider -- AT&T -- has told investors it will reach 18 million households with broadband within several years. And he said nothing in the bill requires new broadband investment to occur in Indiana, even if companies raise their capital here.

    "They're going to make this investment whether you deregulate basic service or not," Smith said.

    Based on similar concerns, some lawmakers regard deregulation as a balancing act between consumer protection and the potential for increased competition and lower prices.

    Sen. John Broden, a South Bend Democrat who supported the original Senate bill, said the experience of other states suggests long-term consumer benefits.

    "There will be market-oriented pricing," he said.

    But Broden said he remains concerned that ever wider arrays of bundled services will confuse consumers, causing some to buy packages that exceed their needs.

    Industry sources acknowledge that bundling is the communications future, but they say consumers will be able to choose from low-, medium- and high-tier packages.

    They also acknowledge that consumers will pay the initial price for increased capital investments in broadband systems. But advocates for deregulation also say long-term costs will drop dramatically, even as consumer choices multiply.

    "When consumers get to choose, the consumer tends to win," said Wayne T. Brough, chief economist at Freedom Works, another Washington, D.C., think tank.

    by Martin DeAgostino on 2/15/06.