Raising the Phone Bill on New Jersey's Families

Raising the Phone Bill on New Jersey's Families

February 28, 2011

Verizon and its allies are promoting a bill, S 2664, which would eliminate both rate and quality regulations for most phone and cable consumers in the state of New Jersey. This system has delivered lower phone rates for New Jersey residents than those in most other states, while also delivering cutting-edge broadband services that are ranked nationally as better than any other state in the nation.

While there is always room to improve telecom services in any state, New Jersey would be exchanging a regulatory system that is largely working for New Jersey families for a deregulatory scheme that has failed consumers in state after state.
S 2664 will substantially increase the phone bills for average New Jersey families still dependent on landline local phone service. The evidence for this outcome comes from states around the country that have passed similar phone deregulation measures. 17 of 20 such states have seen increased phone rates afterwards, with some states seeing as much as a doubling of basic phone rates. California, which like New Jersey started from a relatively low basic phone rate for customers, saw a 50 percent increase in rates over just two years due to deregulation in that state.
The consequence of S 2664 would likely be a similar rate increase for New Jersey families to that experienced in California and other states in the wake of deregulation. Basic residential phone rates are currently limited to no more than $16.45 per month or $197 per year by the state’s Bureau of Public Utilities, so a 50 percent hike similar to that experienced in California would mean a nearly a $100 additional cost per year for each New Jersey basic phone service customer.
S 2664 could also cost those customers and New Jersey taxpayers hundreds of millions, even billions of dollars, if Verizon sells off its landline business in the state without rigorous regulatory oversight. S2664 removes any regulatory oversight or control of such a sale and any ability of ratepayers who built the system when it was a monopoly to share in the proceeds. In a series of sales through 2009, every state Verizon spinoff experienced bankruptcies and disrupted phone service in the wake of such asset sales and only tough conditions imposed by a state regulator can assure that consumers are protected and that any new purchaser of Verizon’s assets will commit capital to upgrading telecom infrastructure in the state.
The reality is that landline phone markets are not really competitive and the alternatives such as wireless and VoIP are too expensive to provide real price competition. For this reason, effective regulation of landline local phone services is critical to protect consumer interests and build any form of effective competition in that sector of the telecom market.
The proposed S 2664 will not promote competition. Like many forms of rushed deregulation, S 2664 will end up just raising phone rates for consumers, undermining effective consumer protections, and disabling the ability of state regulators to promote the long-term economic development and investments most likely to give New Jersey consumers competitive options over the longer-term.


The December 2009 survey of states by the National Association of State Utility Consumer Advocates found that out of 20 states surveyed with deregulation in place, 17 of those states had seen rate increases. And the reported increases ranged from 8 percent per year to 100 percent increases in rates. In fact, the only decreases in phone rates for basic services were in three states where basic phone services are still fully regulated.
Examples of this pattern in other states include Ohio, whose law restricted rate increases to $1.25 per month per year, which has seen that maximum increase in each of the years since the law was passed, while Illinois, following a deregulation law passed last year, saw AT&T increasing line charges by up to 63 percent. 



Higher rates for phone services following deregulation mirror earlier increases following cable deregulation. For example, a December 2009 state audit in Wisconsin found lower prices had not resulted from cable deregulation. Over a two-year period ending in July 2009, costs increased, on average, 21 percent for basic cable service and 11.5 percent for expanded basic service, according to the Legislative Audit Bureau.
This actually fits the pattern New Jersey saw in the wake of its statewide franchising law for Verizon FIOS deployment. In a 2010 report, the New Jersey BPU found that unregulated cable programming rates had increased 9 percent annually, while basic cable rates, in the communities where they are still regulated by the Board, “have on the other hand decreased from $12.71 at the end of 2006 to $12.47 in the first quarter of 2010.”


One critical loss from phone deregulation in other states has been not just higher rates but the loss of an effective regulator who can enforce consumer rights. As the California Senate Rules Committee outlined in their
report on California deregulation: “Once telephone companies are detariffed, the Consumer Affairs Branch has problems getting them to resolve differences.”
Regulatory agencies provide an essential protection for consumers, since legal rights that can only be enforced through court proceedings are largely empty for low-income consumers suffering violations that cannot be prevented in a cost-effective way through the courts. Because regulatory agencies can act to sanction companies for violations of consumer rights on a more comprehensive level than litigation, they end up being a far more effective tool for consumer protection.


New Jersey should be proud that its regulators have delivered the lowest phone rates for low-income residents and the best access to cutting-edge broadband Internet of any state – yet the New Jersey legislature is threatening to undermine the system of regulation that delivered these key goals of telecom policy. S 2664 is likely to raise phone rates, weaken quality of service and leave state consumers vulnerable if Verizon sells off its landline phone service to another company.
Landline local phone deregulation has failed across the country — delivering higher costs to consumers and worse service. States that have implemented local landline deregulation have seen large increases in phone rates, often in the double-digits and for some services, prices have more than doubled following deregulation. And without regulatory enforcement, consumers have found that they have little recourse in enforcing their rights.
In particular, the multiple bankruptcies of landline subsidiaries sold-off by Verizon across the country highlight the need for vigilant regulators protecting the public interest. Taxpayers and consumers in multiple states have been left with degraded service because of Verizon selling off local telephone assets to undercapitalized companies. New Jersey regulators need to remain in the position to protect consumers during the sell-off of landline assets, as state regulators in West Virginia and Washington were able to do because regulators were empowered to do so.
There are still too few local phone service competitors for competition by itself to prevent price manipulation and gouging by oligopolistic companies that dominate local phone markets. The debacles in banking and electricity deregulation across the country should make legislators cautious in rushing into any kind of deregulation. Good regulation in fact is needed to encourage useful competition and protect consumers from predatory behavior by companies.
Ultimately, S 2664 is a bad deal for New Jersey that will just replicate failed phone deregulation experiments around the country.