A Government Ruling that Should be Reversed
By Mike Thompson • Jul 14th, 2009 • Category: Feature, RegulationThe State Corporation Commission is supposed to protect the citizens and help maintain a level playing field to ensure our competitive market place works at top efficiency. At least that is the generally accepted purpose.
On May 29, the SCC made a decision that seems to grant an unfair subsidy to a major telephone company serving fewer than 10 percent of Virginia’s citizens, requiring the remaining 90 percent of Virginia consumers to bear almost all of the cost. It appears the only purpose of the subsidy is to enable customers of Embarq, a Fortune 500 mega- company, to pay lower telephone rates than are paid by Verizon, AT&T and other telephone companies.
The subsidy provided to Embarq allows it to not charge its customers for connecting and terminating long distance calls. The customers of AT&T and Verizon, however, are charged for those items in their monthly bills. More than 90 percent of Virginians are not served by Embarq so the vast majority of our citizens are paying too much for long distance service just so Embarq customers can enjoy lower local telephone rates. And Embarq recently merged with Century Telephone to form CenturyLink, an even larger Fortune 500 company, further demonstrating that it needs no special treatment.
In the highly competitive, quickly changing and infrastructure intensive telecommunications industry this decision by the SCC makes no sense; particularly, since in 2005 the SCC required Verizon to eliminate the same sort of access fees from its rates. Why should the government’s regulatory agency allow one competitor to charge higher access fees that it has already rejected for another?
This decision by the SCC is simply not compatible with the modern, highly competitive telecommunications market. When a regulatory agency decides which companies receive subsidies and which consumers are forced to bear the cost of those subsidies, the regulator rather than the market picks the winners and losers. If the SCC’s ruling stands then traditional long distance services in Virginia will cost more than it should, and long distance companies will find it more difficult to compete with the Internet, e-mail, cell phones, etc. Moreover, this will allow Embarq to not compete as hard to serve its customers because it enjoys SCC-endorsed subsidies paid for by its own competitors. That is just not right, and it is certainly not in the best interests of Virginia.
When Embarq merged with Century Telephone to create the huge competitor now known as CenturyLink, it said the expected savings were $300 million per year or more, further calling into question the necessity of these subsidies and pointing out the unfair market place created by the SCC – the very opposite of this state agency’s mission. And then on top of all of this, before the Embarq merger to create CenturyLink, its earnings in Virginia were fully 20 percent of its investment according to the SCC – this is clearly not a company that needs government help.
The General Assembly made it crystal clear to the State Corporation Commission that it was to “promote competitive product offerings, investment, and innovations from all providers of local exchange telephone services in all areas of the Commonwealth.” To his writer that means the SCC should not be requiring AT&T, Verizon and other telephone company customers to unfairly subsidize Embarq’s customers.
The SCC has agreed to revisit its May 29th decision. Hopefully the Commission will change its ruling and put all telecommunications companies on an equal competitive footing. To do otherwise has the SCC seemingly picking favorites in the market place – just the opposite of what this government agency was established to do.
Everyone makes mistakes. Government agencies certainly do. Mistakes that are quickly corrected are a sign of self-confidence. That is the proper thing to do whether the mistake is made by an individual, a business or a government agency. We’ll soon know if the SCC does what is right and changes it anti-competitive decision of May 29th.
Mike Thompson is the chairman and president of the Thomas Jefferson Institute for Public Policy, Virginia’s premier non-partisan public policy foundation.
For 24 years Mr. Thompson owned his own marketing company in Springfield. During 11 of those years he was also president of a family owned group of furniture stores in Georgia. After selling his company he started the Thomas Jefferson Institute.
He has been very active in national, state and local politics and has been a member of a number of community organizations, commissions, and committees. He is the Past Chairman of the Virginia Leadership Council for the National Federation of Independent Business (NFIB) and serves as Vice Chairman of the internationally acclaimed Fund for American Studies.
These views are his and do not necessarily reflect those the Institute or its Board of Directors.
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Thank you for discovering this anti-competitive behaviour of the SCC. Please let us know what they decide to do about changing that decision.
Mr. Thompson either did not read the SCC’s May 29th order or was short-changed by those who provided him with the “facts.” First, the SCC’s decision did not “grant an unfair subsidy” to Embarq. The order, in very clear language, actually REMOVES 50% of the access charge by the end of two years, totaling over $11M. Second, Mr. Thompson apparently does know that although Embarq provides service to less than 10% of Virginians, those Virginians are, for the most part, citizens who live in some of the most rural parts of our Commonwealth, where basic telephone service would otherwise be unavailable because that service wouldn’t be affordable. In some parts of the state, service would cost over $100 per month. If Mr. Thompson had read the SCC’s order, he would understand exactly why the Commission concluded that Embarq should not be treated the same as Verizon. Although Mr. Thompson asks that “all” telephone companies be put on “equal” footing, he also fails to mention that there are a number of other rural telephone companies that also have access charges far greater than those charged by Verizon. Third, where does Mr. Thompson think that millions of dollars in reduced AT&T and Sprint costs will go? Don’t be waiting at your mailbox for that rebate check – the money will go to their corporate headquarters in Texas and Kansas at the expense of your fellow Virginians.
Virginia has always been a Commonwealth, where Virginians all work together for the common good. The access charge system was established to ensure that ALL Virginians, whether in urban Northern Virginia or rural Southwest Virginia all have access to reliable, affordable basic telephone service – the concept of “universal service.” Embarq, which will soon become CenturyLink, has a proud tradition of providing reliable, affordable telecommunications services to rural Virginia and many rural areas across the United States. If Mr. Thompson had his way, only those living in Northern Virginia, Richmond and Hampton Roads would have a dial tone when they pick up their phones.