High Cellular Rates Call for Action
California’s large and powerful cellular telephone carriers are at it again.
Recently criticized by the California Public Utilities Commission for refusing to lower cellular rates to more than 2 million California consumers, the cellular carriers now accuse the PUC of thwarting “entrepreneurial zeal” by asking the Federal Communications Commission to allow it to impose limited regulatory oversight.
The PUC has prodded the carriers for years to reduce rates, with little success. Except for an occasional promotional pricing plan for new customers, since 1984 basic monthly access and usage charges in California remain virtually unchanged and are among the highest in the nation. In Los Angeles and San Francisco, subscribers pay basic rates of $45 monthly for access and 45 cents per minute in peak usage periods. Prices for the “competing” cellular carriers in any city are almost identical. After years of study, the PUC has declared that cellular prices remain “unreasonably high.”
THe PUC’s conclusion is supported by the U.S. Government Accounting Office, which in 1992 studied 30 major cellular markets in the United States, including Los Angeles, San Francisco and San Diego. In its report titled “Concerns About Competition in the Cellular Telephone Service Industry,” the GAO found that the duopoly market structure imposed by the FCC was restricting full competition, which in turn was likely leading to excessively high rates. (FCC policy permits no more than two licensed cellular carriers to offer service in any city.) Likewise, the FCC determined in March that cellular is still not fully competitive, a sentiment echoed in a recent Wall Street Journal article.
So what’s the cure for these high cellular rates? The cellular carriers would have you believe that deregulation will lower prices. This notion is silly at best. No company lowers prices if it isn’t forced to by competitors or regulators. In fact, the only thing keeping AirTouch from raising its rates in Sacramento is the PUC, which so far hasn’t agreed to its request. (Keep in mind that cellular carriers are free to lower prices today and that we have seen precious little of that freedom exercised.)
The answer to high cellular telephone rates in the long run is competition. In industries where there is effective competition, government oversight is both unnecessary and counterproductive. We need to encourage the development of more wireless competitors, which the federal government is doing through its auction of personal communications service licenses. But this potential competition, which is years away, must be monitored carefully because the most likely bidders for these PCS licenses are the cellular carriers!
In the interim, the PUC must retain its regulatory authority. Backed by United Consumers Action Network and Toward Utility Rate Normalization, the PUC has petitioned the FCC to allow it to continue to regulate cellular rates. This will protect consumers against any rate increases. It will also allow the PUC to continue its efforts to inject more competition into these markets and deal with the sticky issue of bundling cellular telephone equipment with service, all of which will lead to lower consumer prices.
Far from thwarting “entrepreneurial zeal,” as alleged by the cellular carriers, the PUC’s continued regulatory authority will protect consumers from excessively high prices by these communications duopolists. The FCC needs to approve the PUC’s petition.
GWEN MOORE
Assemblywoman (D-Los Angeles)
Chairwoman, Utilities and Commerce Committee
