Ameritech-SBC Put On Hold By Indiana Regulators
July 8, 1999
by Irwin Stelzer
Imagine trying to place a telephone call, consistently and persistently, for a full year, only to hear a busy signal. Then finally the call goes through. There is a sweet ring in your ear, but before uttering even one word, you are put on hold.
Such is the experience of Ameritech, the state's largest local telephone service provider and the primary telecommunications provider throughout the upper Midwest, at the hands of Indiana regulators as it seeks to complete a merger with SBC, the regional telecommunications firm serving Southwest America.
While some may enjoy the metaphoric irony of the local phone company being put on hold, the actions of the Indiana Utility Regulatory Commission (IURC) raise troubling and significant questions about the ability of Indiana to keep up in the fast-paced, ever-changing world of high technology. These actions help explain why Indiana is dead last in the nation in creating the new high-paying, high-tech jobs that many believe are the key to the economy of the future. But even more importantly, how Indiana handles this issue will speak volumes to the world about the business climate we are preparing for this new information-based economy.
A year ago Ameritech and SBC announced plans to merge. As regulated utilities, various government agencies at state and local levels may review and, in some cases, must approve the proposed merger. Included among these agencies are the U.S. Justice Department and the Federal Communications Commission.
In the ensuing year questions have been raised, issues explored, and concerns aired about the complex, $72 billion deal. Virtually every government agency involved has held hearings, wrestled with the issues, and issued views. And, again, nearly all have approved of the merger, including the Justice Department and the FCC. Illinois is near the end of its review process, and is expected to complete its work in the very near future; approval is considered likely.
But not our beloved Indiana. A few weeks ago, the IURC suddenly announced - after virtual silence for nearly a year - that it, too, wanted to approve the matter as well. Set aside the question of whether it has the legal authority to do anything more than comment on Indiana aspects of the potential new company's merger (that's a question for the lawyers and the Legislature); this late and unfocused entry threatens to quash the whole deal. Or it may cause Indiana's operating unit of Ameritech, known as Ameritech Indiana (the former Indiana Bell), to be spun off as a separate, stand-alone entity, so the larger deal can move forward.
The more troubling issue, however, is the signal the IURC's action sends to the world of high-tech investors and entrepreneurs. It says Indiana is committed to the very visible heavy-hand of government for engineered outcomes rather than the so-called invisible hand of markets for efficient outcomes.
This disturbing development brings many problems to the fore. Of course, Ameritech argues a sophisticated, world-class communications company best serves the state with its attendant market clout, economies of scale, access to capital markets and innovation engines. But the larger problem is the regulatory environment Indiana is creating for telecommunications and all public utilities seeking to move from less regulation to more market-oriented operating environments. This includes the electric, gas, water and (for local governments looking to the state for guidance) the cable TV industries, as well as telecommunications.
Indiana must either maintain a strong regulatory role in these matters, or it must increasingly rely on the disciplines of the market to shape and guide business practice and investment decisions. The actions of the IURC show Indiana State government is wedded to the old approach, and furthermore, this latest step shows it will wield its heavy hand with little thought for the disruption, damage, and delay it causes. Obviously, Indiana's regulators -- and the Governor and legislators who appoint and charge them with their duties -- can go in the direction of major regulation and review rather than greater reliance on markets.
But in so doing, they need to recognize the whole world is moving to less regulation and more competition. Europe has essentially deregulated its electric utility industry and Canada is far ahead of the United States in deregulating telecommunications. These achievement are all the more remarkable when one considers these countries have had essentially socialist-leaning governments for the past 50 years with a strong commitment to central planning over free market principles.
Even the U.S. Congress has gotten into the game, deregulating the airlines in the late 70s and stepping into the vacuum created by a court-ordered break-up (deregulation of a different sort) of the telecommunications industry with sweeping legislation in 1996 to foster competition in the telecommunications industry. Consumers benefit from greater competition and innovation is boosted when capital can flow to its most rewarding uses.
The actions of Indiana utility regulators go against this sweep of history. They tell everyone that Indiana will remain locked in the past, with government regulators determining what companies can and cannot do, what rates they will charge, and what levels of service they will provide. In exchange, they will dispense and then manage monopoly franchises. That's not good for innovation, risk-taking or consumers.
But it is the Commission's right, at least until the Legislature changes or constricts the commission's power. Perhaps the best we can hope for is that the Commission will exercise its powers in a timely manner, not waiting a year to decide it will take an interest in a matter long pending before the country and Indiana. If the bureaucratic behemoths that are the FCC and the Justice Department can complete their work in a year, at least we can ask Indiana's bureaucrats to not wait a year to go to work.
Yet if the Commission's lines are always busy or on hold, don't count on delivering that message through the very communications medium it helps regulate -- the telephone.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.