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Fatal Conceit at the California Public Utilities Commission

After a year of heading in the right direction, the California Public Utilities Commission veered off course last week when Commissioner Dian Grueneich initiated a dangerous move towards old command-and-control regulation. Grueneich claimed to be staking out a middle ground in her alternate plan to Commissioner Michael Peevey’s outline for a California Telecommunications Bill of Rights.

“This decision strikes the appropriate balance between the needs of consumers and supporting a competitive marketplace,” she announced on January 25. Though everyone wants to protect consumers and ensure a vibrant marketplace, it is folly to think that a bureaucrat and her staff have the knowledge and power to magically strike the right balance.

Regulations Can Backfire

It’s a mistake that policy makers have been making for ages and one aptly described by Friedrich Hayek as the “fatal conceit” — the notion that a few very informed people could order societal affairs in ways that would somehow yield results superior to those that spring from the spontaneous order of a free society. This can lead to all sorts of problems, and the telecommunications industry is unfortunately a poster child for the way heavy regulations backfire.

Recall, for instance, how regulators thought they would be able to create competition in the telecom market using the 1996 Telecommunications Act. That experiment failed horribly because regulators can’t create competition, a function that must be developed in the marketplace. Instead, regulator efforts wound up forcing property owners to share their facilities with competitors at below-cost rates, harming investors, innovation, and ultimately consumers. A similar disaster is heading California’s way if Commissioner Grueneich’s plan is approved.

In her alternate proposal, Grueneich offers tired claims that increased government involvement is necessary for the marketplace to function. One of the more distorted is the idea that more rules are good for the economy because, while they might be costly, they create certainty.

Consumer Confidence

“We found that consolidation of the consumer protection rules provides economic benefits through reduced regulatory uncertainty as well as reduced complexity. In fact, compliance with a well-designed set of rules and regulations will give consumers confidence in the telecommunications industry and encourage growth and development of markets,” her proposal reads.

Keep in mind here that “consolidation” of rules really means the application of new rules to the wireless sector — a disturbing case of double-speak. It is the consolidation of ideas and dictates found in various statutes that could be used to exert greater control over companies. Grueneich’s proposed plan is no deregulatory document, and the trick of framing a regulatory document as a deregulatory one is getting pretty old.

Given that the cellular and Voice over Internet Protocol markets have been taking off like rockets with minimal regulation, it’s hard to see how government intervention in the form of a new “bill of rights” will encourage growth.

Who Needs Enemies?

Requiring all wireless and other carriers to adhere to the same terms and conditions takes away a valuable part of the competitive process. For instance, if one phone company has a 15-day return period but cheaper rates, that product might be more compelling to a consumer than one with a 30-day return period and higher rates. Commissioner Grueneich wants to take away that choice. With friends like that, consumers don’t need enemies.

Governor Schwarzenegger has said he opposes new telecom rules that “impede growth in the highly competitive wireless industry.” Yet that is exactly what his Berkeley-residing Democratic appointee is striving to create. Consumers should hope that the governor’s other two new appointees reject such backward thinking and take a fresher, more sophisticated stance.

Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute and co-author of “Upgrading America’s Ballot Box: The Rise of E-voting.”

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