If you watch television for more than five minutes in Nebraska, you are going to be
bombarded with advertisements in favor or against Amendment 414. Amendment 414 is an
attempt to remedy the excessive instate long distance phone charges that Nebraskans pay.
It costs more to make an instate long distance call than it does to call Hawaii. The
reason for this is that long distance phone companies are charged access fees by the local
phone monopolies that greatly exceed the cost to them.
This amendment is aimed at the three largest phone companies in the state and applies
primarily to high population areas in and around the Lincoln/Omaha Metro areas. Supporters
of the Amendment claim the profits from the high access rates amount to 65 million dollars
a year. Opponents don’t refute the figure, but they claim it is necessary to
subsidize less profitable rural phone service and to upgrade the system with the latest
technology.
The issue was further complicated last week when the Public Service Commission
announced that they are going to implement new regulations that would reduce the long
distance access fees for all phone service in the state. This goes beyond the limited
scope of 414, which only applies to the three largest phone companies.
As to be expected from a bunch of bureaucrats and politicians, they couldn’t stop
with a simple solution of cutting rates. They are proposing a new tax and increase in
basic phone rates as a reward for lowering long distance access fees, which will lower
instate long distance charges. If you make a lot of instate long distance calls, you will
likely pay less; but for those who don’t make a lot of long distance calls, their
basic rate will go up. The problem with the Commission’s plan and with governmental
regulations of all communications and utilities for generations has been based on the
wrongheaded policy of Universal Service. Adherence to this policy is shared by Republicans
and Democrats alike. Bill Hoppner and Mike Johanns are two examples. (2nd Plan Offered)
Universal Service is based on a belief that phone companies are a natural monopoly and,
therefore, competition doesn’t work. This has never been true. In today’s
technological revolution, anyone continuing to believe in Universal Service shows complete
ignorance of the technological realities. This policy should have never gained acceptance
and should have long ago been as extinct as a dinosaur.
If you look at the history of the development of the telecommunications industry, it
illustrates that there was once plenty of competition expanding service nationwide until
the politicians stepped in and destroyed the competition, in favor of AT&T. From the
time Alexander Graham Bell patented his invention in 1876 until 1895, he had an exclusive
monopoly to develop his invention. From 1880 to 1895, the average daily calls per one
thousand people rose from only 4.8 to 37. In 1880, there were 1.1 telephones per one
thousand people. By 1895, under a monopoly, the number was 4.8 per 1,000 people.
From 1895 to1910, there was open competition. During that 15-year period, the average
daily phone calls per 100,000 people jumped from 37 to 391.4 calls. By 1910, there were 82
phones per 1000 people. In the first decade of competition, over 3,000 companies had
entered the phone business. Illinois, Indiana, Iowa, Missouri and Ohio all had at least
200 companies in each state (or over a 1,000 total), while consumer prices were dropping.
For AT&T, average return on investment had dropped from 46% to 8%. Market share had
dropped from 100% to 49% (Unnatural
Monopoly).
Unfortunately for the country, AT&T appointed Theodore Vail as Chairman of the
board. Vail started expressing the idea that competition was inefficient and started a
policy of trying to buy out all competitors. Then, came the election of Woodrow Wilson and
World War I. During the war, Wilson nationalized the phone companies. Nationalization led
to skyrocketing phone bills and the idea of rate regulation. After the war, the
regulations remained, and AT&T was able to take advantage of the situation to convince
politicians to destroy competition. Led by New Deal Socialists like George Norris,
competition was destroyed and the false premises that rural areas couldn’t have phone
service without monopolies and subsidized service became national policy. We did get
universal service, but prices remain artificially high.
Even if one concedes that Universal Service slush funds were once necessary,
today’s technology renders the idea completely obsolete. Computers, telephones and
television are all converging -- thanks to the advent of the microchip. All of the
different communications mediums are now capable of providing the same services.
Satellite, cellular phones, microwaves, and other things allow for world wide
communication from every corner of the globe. I can already call anywhere in the state
with a cellular for a flat fee. That fee is still higher than basic phone rates, but it is
declining all the time while local phone rates continue to skyrocket.
Living in the Lincoln area, my basic rate is supposedly $16.35, but I pay $28 a month
for basic service and was informed on the last bill of a $.50 increase. That includes $4
for the right to not be charged long distance rates to call Lincoln. This was free or
nearly free until a few years ago. That is the only service above the basic that I have. I
don’t have a touch tone phone, call waiting or caller ID. In the last 10 years, the
actual fee I pay for local service has doubled. The bottom line minimal charge under the
new regulations by the Public Service Commission is $18 – which, in reality, will be
much higher. It is the politicians that need to get out of the way and allow competition.
This will lower costs and provide better service in the long run.
As to Amendment 414, it doesn’t solve the real problem of lack of competition.
However, in the current anti-market monopolistic system mandated by law, we have every
right to demand lower rates that are based on shear price gouging. It is true that
AT&T is the major force behind the Amendment and, considering they are partly
responsible for the current mess we have, it is somewhat hypocritical; but it is no reason
to vote against something that will lower our bills. If it doesn’t lower overall
costs, it will be because the regulators allow the local companies to gore us by raising
local charges, which we see the Public Service Commission is already trying to do. By
voting for Amendment 414, we can send a signal that we are sick of paying some of the
highest rates in the country. It also should just be the start of forcing the politicians
to get out of the way and let the free market work.
If these high rates were really necessary, then why are the local phone companies
spending millions on advertising when they have no competition? Even worse, how can they
spend millions more on a political campaign to keep the status quo, if they are spending
all their profits on providing rural service and improving technology? The answer is they
are using the power of government to protect a rate of profit that they could never
sustain in a free competitive market. It is time to put a stop to the Jurassic policy of
monopoly and Universal Service Funds.
