Monday, April 12, 2004 - The Progress & Freedom Foundation Blog

Competion means you get to compete....Kansas misses the point

"Winback" is what happens in a market where a firm loses a customer to another firm and attempts to lure that customer back. This is called competition. Competition is good - it means rival firms try to lure customers with superior prices, packages and services. This all appears straightforward and obvious. It is not obvious to the Kansas Corporation Commission (KCC).

Last Friday, the KCC put its muscle behind an order to prevent consumers from finding a better bargain in the telecommunications marketplace. The KCC sees the need for regulation to intervene between the consumer and the firm. Mind you, competition was the point of the '96 Act, but now the KCC is ordering its incumbent, SBC, not to compete without saying "mother may I."

The KCC first found winback offers are legal under Kansas law and then determined its own authority to review and investigate winback offers. This second feature of the order spells out a new regulation for, a new policy. Specifically, the order precludes an ILEC from contacting a lost customer for 30 days, precludes an ILEC from making a special offer to win the business of a new customer, precludes an ILEC from making a special offer to retain consumers who seek a better deal, and limits the length of a contract between an ILEC and a new customer to 12 months. Importantly, these restrictions only apply to one ILEC in the state, SBC.

Writing a partial dissent to the order Cmr. Robert Krehbiel concluded,

[W]hile we concern ourselves with the transition from a regulated to a competitive environment, technological advancements have rendered much of the effort irrelevant or archaic. Unanticipated opportunities for various unregulated telecommunications providers now pose, perhaps, the greatest competition and the greatest challenges for both incumbent and competitive local exchange carriers...[W]e also recognize that competition has presented itself in many different forms, largely beyond the regulatory authority of this Commission, which provides consumers with many different choices. As reality changes, so too must we.

By last summer, approximately 1.5 million access lines were served in Kansas. One out of every five lines was served by a CLEC and almost 18 percent of CLEC lines are facilities based. This is up considerably from the one out of every eight lines served by CLECs in June 2002. (These figures are all from the FCC's Local Competition Report.)

Meanwhile there are a dozen wireless carriers operating in Kansas serving nearly 1.2 million subscribers. The growth of this market is in double-digits and hit 13 percent last year. Since early 2003, there have been more wireless subscribers than ILEC lines in service. As Cmr. Krehbiel noted, "competition has presented itself in many different forms."

The whole premise behind extensive winback regulations is supposed market power. But even the motion to initiate the KCC proceeding belies the market power argument. It defines winback with the following language: "A winback offer is a promotional offer or discount that is available to former customers of a LEC that voluntarily terminated their service and subscribed to another service provider." (Italics mine). Consumers making voluntary choices, and then presented with the option of a better deal, are certainly not victims of predatory behavior. These same consumers must be denied competitive choices from the incumbent SBC? This is something of a "we had to destroy the village in order to save it" reasoning - we had to deny consumers a competitive choice to bring them competition.

In the transition from regulated monopoly to competition, there is a temptation to handicap the incumbent so it cannot compete. This is the "competition policy as market share apportionment" school of regulation and it has an ignominious history. In electricity restructuring, many states ordered an incumbent-financed "shopping credit" to induce consumers to change providers. In long distance, the FCC forced AT&T to continue tariffing its services and hold a price umbrella over new long distance entrants. All of this is in the name of competition, but the bottom line is that regulators deny consumers lower prices, or artificially hold the incumbents' prices high, to induce market share gains for new entrants.

As a counterpoint, three days after the KCC order the Colorado PUC let a Qwest winback promotion go into effect as a matter of law. Next door, the Centennial State is one up on the Sunflower State when it comes to sensible rules for competition.

posted by @ 10:52 AM | General