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Wednesday, February 23, 2005

A Connecticut Yankee? No, Not Quite
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It doesn't happen so often any more. But when I first moved to North Carolina, I'll admit, I was called a Yankee on more than one occasion. For those of you not in the know, this is not high praise from many long-time residents of the South. (I'm doubly afflicted by not having inhereted the genetic marker giving me over to ACC-induced craziness every March.)

So it would seem that a trip to Hartford, Connecticut to testify before a joint committee of the legislature would be straightforward, perhaps even comfortable. As it turned out, it was more of an endurance test. In addition to legislation that would rationalize telecommunications tariffs, the nearly 6 1/2 hour hearing covered eight other bills on everything from wireless number directories and wireless consumer rights to distributed generation and congestion costs in electricity. My principle interest was in the tariff provision.

Current Connecticut law allows competitive providers a 5 day review for filed tariffs while the incumbent LEC must present a cost study and wait a minimum of 21 days. It is an oddly familiar situation with predictable effects for consumers. From my statement, a paraphrase of Yale Professor Paul MacAvoy's research on the long distance market:

To make matters worse for consumers, the regulatory obligations were unequal. As a result of its past place as a market leader, one firm was obliged to file its rate schedules two weeks prior to enactment while other firms could make changes within 24 hours. The more nimble firms always had a fortnight in which they could beat their competitors to the punch. Thus, the most aggressive firm lost all incentive to cut prices while the other firms were content to build their business on the back of (guaranteed) higher revenues. Tariffing created the situation where AT&T - the largest firm - held a price umbrella over the newer entrants, MCI and Sprint, and none of the firms had an incentive to engage in vigorous price competition.

The Hartford Courant covered the hearing and provides a sense of the sky-is-falling sentiment that the consumer counsel's office brought to the discussion. Nonetheless, the empirical research is sound: In competitive or emerging competitive markets, tariffs are anti-consumer and unequal tariff requirements are even worse for consumers.

Let's hope that the Connecticut legislature learns from the recent past. While Twain's classic was among the first novels on time travel, lawmakers shouldn't want to turn back to a regime that causes consumer harm and reduces price competition.

posted by @ 11:14 AM | State Policy

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