It came from Nebraska and could be headed for your house: a new wave of deregulation that could raise local telephone bills as it spreads from state to state.
In a move that stunned the telephone industry and consumer activists, the Nebraska legislature last month approved a near-total deregulation of local telephone service for residences and businesses. The law will phase out the rate-setting authority of the state Public Service Commission.
The telephone company will no longer need government approval to increase monthly phone bills, even in areas where there is no competition, such as local service to residences. Nebraska's law is the most far-reaching manifestation of a national trend some analysts are calling "Phase 2" of telephone deregulation.
The first phase, culminating in the 1984 Bell System breakup, ended most regulation of long-distance rates and equipment prices. But that big change left most local rates and services under control of state utility commissions.
Phase 2 is aimed at circumventing utility commissions, leaving all phone rates up to the market. This initiative is being pushed by "Baby Bell" holding companies that took over local phone service.
Nebraska is the first state to deregulate all aspects of the telephone business, including residential service. Fourteen other states have approved some form of local telephone deregulation, and statutes based on the Nebraska model are pending in two dozen other legislatures, according to a survey by the Institute of Public Utilities.
"The concept is one that is going to spread," Gene Kimmelman of the Consumer Federation of America said. "Local phone rates are going to go up as more states move toward local deregulation. But in most states consumers may not be hit as hard as they will be in Nebraska."
"We see Nebraska as the standard for every state," said Jack A. MacAllister, president of U.S. West, the Baby Bell holding company covering the Plains and Rocky Mountain states. "Our basic position is that there's a new competitive market in telecommunications across the board and in that climate you don't need or want government control of the market."
MacAllister said that technological change -- in industry jargon, the transition from POTS (Plain Old Telephone Service) to PANS (Pretty Advanced New Stuff) -- is bringing new forms of service and new competition, making state regulation obsolete. According to Philip E. Stoffregen, a Des Moines telecommunications lawyer studying the trend for the public utilities institute, Indiana, Illinois, Iowa, Montana, North Carolina, North Dakota, Nebraska, Nevada, New Mexico, Oregon, Texas, Utah, Virginia, Washington and Wisconsin have passed some form of local deregulation. An Arizona law is on the ballot for voter approval or rejection in November.
These laws generally have phased out state control over business services, where there is a competitive market in most places. Nebraska went further. It decontrolled even noncompetitive "basic exchange service," that is, the standard residential phone.
The Nebraska law retains some state control for a five-year phase-in period, authorizing the utility commission to study any rate hike greater than 10 percent a year. After 1992, phone companies here would have free rein to set rates, even where they have a monopoly.
Given the deregulatory fervor in many state capitals, especially in the West, and the strong lobbying effort by Baby Bell companies -- particularly Denver's U.S. West and Chicago-based Ameritech -- for a free market in telecommunications, it was not improbable that some state would embrace complete deregulation.
A spokesman for Bell Atlantic Corp., owner of the Chesapeake & Potomac Telephone Co. that serves the Washington metropolitan area, said that it has not asked state legislatures to deregulate local telephone service. "Our position is the issue is not one of deregulation but providing the service closer to cost," a company spokesman said. "We have no plans like in Nebraska. We have worked on repricing."
Nebraska gave the nation the idea of Arbor Day, but its only other major policy breakthrough is its unicameral, nonpartisan state legislature, a 1935 innovation that no other state has adopted.
"We did it first because we had a governor who really cared about telecommunications," said Nebraska Gov. Bob Kerrey, a popular Democrat who is fascinated by high-tech issues and has been designated "lead governor" on telecommunications matters by the National Governors Association.
"You had U.S. West making the case for this all over its region, and here in Nebraska they had a receptive audience," Kerrey said.
The governor said Nebraska chose to lead the nation in the deregulatory drive partly in hopes that a favorable regulatory climate would attract telecommunications industries to this agriculture-dependent state. For example, the "tele-marketing" firm that recently handled 1 million calls from owners of the Kodak instant camera, when Kodak stopped producing the camera and offered owners another camera or shares of stock, has set up shop in Nebraska.
But Kerrey said his real interest in eliminating regulation is to take advantage of technological advances. "If government gets out of the way so companies don't have to worry about some arbitrary commission of Nebraskans setting their prices, they'll come in here and show us what all their technology can do for our people.
"If you live in a rural, isolated state like Nebraska, you absolutely need to be connected to the rest of the country," Kerrey said. "And there is technology coming along that can connect us much more closely. But to get it, we have to move away from arguing, 'What should the price of the product be?' and into 'What should the product be?' "
These arguments, coupled with a strenuous lobbying effort by U.S. West's local subsidiary, Northwest Bell, pushed deregulation through the legislature.
There has been sharp dissent here, particularly from rural residents alarmed when Northwest Bell conceded that deregulation could cut rates for business but definitely will lead to higher home phone bills.
"You're going to see a lot of Nebraska farmers, guys already in trouble, having fits when they see that phone bill going up like crazy," said Harold Simpson, a member of the Public Service Commission. "They're all going to call me and say, 'What are you doing about this?' " And I'll say, 'I'm doing nothing because it's out of the goverment's hands.' "
Kimmelman of the consumer federation agreed that Nebraska's law is "dangerous" to residential phone customers. But he said he thinks Nebraskans might get some relief just because their state was the first on deregulation.
"I bet the industry will avoid the temptation to send the rates way up in Nebraska," he said. "Then when they take the same kind of bill to a bigger state, they can say, 'See, Nebraska tried this, and it didn't hurt people too much.' "
"Yeah, Nebraska is a perfect door-opener for this," said Simpson of the Public Service Commission. "These phone companies will go to every legislature and say, 'If them hicks in Nebraska took it, it can't be so awful.' "