Anderson Economic Group Work

Consumer Impact of Set Prices For Local Phone Service

The Michigan legislature was considering a bill that would legislatively fix prices for local phone service. SB 1 would reduce the price the largest telephone providers could charge for local phone service, by requiring them to obtain regulatory approval to charge a “common line” or “end-user common line” (EUCL) fee. Similar efforts at legislatively-setting local phone rates were contained in the Michigan Telecommunications Act of 2000. Our analysis published in that year highlighted the likely unconstitutionality of such government price-fixing, as well as the ineffectiveness of such efforts in the past. These provisions were later enjoined by the US District Court, and the 6th Circuit Court of Appeals, due to their likely unconstitutionality. The current senate bill would modify the MTA 2000 language, to avoid directly fixing prices and thereby violating the “due process” and “takings” clauses of the US Constitution. Instead, SB 1 would require the largest telephone providers to seek regulatory approval or rates that include a EUCL; it then directs the MPSC to consider “a reasonable rate of return” for the provider in approving rates.

 This paper considers regulation based on “rate of return,” “just and reasonable” prices, and open competition, as well as the success of price fixing and its economic impact for consumers.

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