OPINION
Winds of Change Could Help Fix Telecom

Governor Arnold Schwarzenegger's two appointees to the California Public Utilities Commission (CPUC) will soon be sworn in. Many hope these winds of change will lift California's stagnant telecom policy out of its slump, making 2005 a pivotal year for communications jobs and technology.

One of the first issues the new commissioners will face is the ironically named "Telecommunications Consumer Bill of Rights," a nightmare set of regulations that micromanages how wireless and other phone companies do business. It will harm consumers by raising prices and stymie the ability of companies to distinguish themselves from one another, thereby denying them the ability to compete. Yet it is competition that benefits consumers.

Democratic Commissioner Susan Kennedy, who opposed the regulations when they passed with a 3-2 vote last May, has put in motion a process that could suspend the rules and potentially change or remove them. If the wireless industry is to continue to provide consumers with the benefits of low prices and innovations, Kennedy must succeed.

Long-Term Damage

"These rules were rushed into place with the full knowledge that delays in implementation were inevitable. Hopefully the commission will take the time to fix what was obviously a flawed process that led to equally flawed rules," Kennedy recently said. "Flawed" is an understatement.

According to an analysis by Dr. Debra Aron of Northwestern University, if the rules stand, consumers could be paying an extra $5.00 a month on their bills, the California economy could lose $2.3 billion in growth, and more than 12,000 jobs could be lost. Dr. Aron's analysis was based on an earlier version of the bill, but even if the numbers aren't exact, the losses would still be massive. And that's not the worst part.

The long-term damage that this Bill of Rights would create in the wireless sector is the most troubling aspect, yet it's unclear if anyone's noticed. With all the focus on picky details -- such as the font size of the letters on a customer's bill -- it's perhaps not surprising that few discuss how these regulations would infect the wireless industry with the virus that plagues the landline telephone business -- interminable litigation.

Shrinking Jobs

For the last eight years, traditional telephone companies like SBC and AT&T (NYSE: T) have been fighting over telecom regulations in courtrooms, necessarily reducing the amount of resources these companies can spend on technology development and serving customers. Indeed, according to data from the California Employment Development Department, the number of telecom-related jobs in the state has shrunk, even as employment rose in other sectors. That's a fate that should be avoided when it comes to the very successful (at least up to now) wireless industry.

Cell phones used to be the size of a brick and came with expensive airtime charges that could hit over $1.00 a minute. Now, one can often get a phone for free and pay usage prices around 10 cents per minute. Depending on what consumers value, they can choose among competing carriers.

For instance, this writer once decided to choose a carrier with a less reliable network because it was the only one offering the new gadget she wanted. That is, consumers make technology choices based on all sorts of inputs. When the government attempts to standardize all businesses in an area, it puts this choice at risk.

Stop the Micromanagement

Wireless technologies are not perfect, as all cellular consumers know. But a government regulatory regime would make things worse, not better. Already the Consumer Bill of Rights has sent Cingular, Verizon, Sprint (NYSE: S), Nextel and T-Mobile into court to stop government micromanagement of their business. This expense of time and money will ultimately be passed on to all consumers of these companies, thereby forcing a tax on people all around the country. If all 50 states followed California's regulatory regime, it would be a disaster.

Governor Schwarzenegger saw the economic consequences of these regulations early on and was distressed to learn that they "will impede growth in the highly competitive wireless industry." With luck, the two new commissioners he appoints share this view and will work to brighten the golden state's future.