BRAIN TRUST:

With California's economy reeling and Gov. Gray Davis scrambling to close a $35 billion budget gap, the last thing the state needs is new government regulations that could cost the state thousands of jobs and billions of dollars per year.

Yet with little regard for the economic consequences, the California Public Utilities Commission is cooking up a new batch of rules, ironically called the consumers bill of rights, that would do just that.

Instant Connection
Today, consumers can activate a new wireless phone faster than it takes to fill up a tank of gas. Stop by one of those ubiquitous wireless kiosks at the local mall or visit a nearby wireless store (most Californians can choose from at least four major carriers), and a few minutes later you're connected.

Twenty years ago, a wireless phone cost thousands of dollars and came with its own suitcase for easy carrying. Now many phones are given away free with a service contract, and the hardest decision is which of 50 or more faceplates your teen-ager wants on her model.

Most would call that progress. But the California PUC sees a threat. Spurred by anecdotal complaints, it has put forward a draft set of detailed new rules titled the Telecommunications Consumer Bill of Rights. These regulations would create new bureaucratic hurdles, such as making consumers wait days instead of minutes to activate new service or modify their plan.

A handful of consumer gripes hardly meet the standard test of market failure or monopoly power that typically justify government interve ntion. No one calls for a Newspaper Readers' Bill of Rights just because a few complain about coverage.

Worst of all, the PUC has developed these new rules without any consideration of the economic consequences – which could be significant and damaging.

In recent years, the wireless industry has become a critical component of California's economy. According to a study by wireless expert Mark Lowenstein, more than 60,000 California jobs carrying a payroll of $3.5 billion are dependent on the wireless industry. More than 2,000 wireless companies are located in the state, nearly double the number located in runner-up Texas. Wireless operators plan to invest $3 billion this year in California -- or had planned to, anyway.

Northwestern University economist Debra Aron estimates that the PUC's new regulatory regime could cost California more than 15,000 wireless jobs, nearly $780 million in lost wages and a 10% increase in the average wireless bill.

Unwanted Protection
Those higher prices will inevitably cut into the wireless subscriber base and discourage new investment, consequences that Aron believes would cost California's economy as much as $3 billion per year.

Ironically, there is scant evidence that wireless consumers want or need the protection the PUC is offering. A nationwide survey of 2,100 wireless customers by the Yankee Group revealed that a remarkable 82% are satisfied with their service and nearly four out of five would rate it "good" or "excellent" value.

The figures in California are even higher. According to the former chief economist of the Federal Communications Commission, Thomas Hazlett, last year there was less than one complaint for every 1,000 California wireless subscribers.

This is astounding, especially when you consider that wireless subscribers are, on average, using their cell phones more than twice as much as they did just four years ago.

Chance To Backtrack
And no wonder. Market competition has driven down prices and made wireless phones nearly as widespread as wristwatches. Between 1994 and 2001, the number of wireless subscribers jumped 500% and wireless use skyrocketed by nearly 1,600% -- all while the cost per minute fell by 73%. It's hard to find a more dramatic example of marketplace success.

Fortunately, there is an easy way for the California PUC to beat an honorable retreat. In his 2003 State of the State address, Davis made a common-sense call for the creation of a new Office of Economic Development within the PUC that would analyze the economic impact of all major regulatory proposals. The PUC's wireless proposal is Exhibit A in the case for such an office.

As it stands, there is no market failure that requires immediate action. At a minimum, the PUC should table its new wireless regulations until the costs and benefits can be weighed -- and then, one would hope, scrap them altogether.

Sally Pipes is the President and CEO of the Pacific Research Institute, a California-based think tank. She can be reached via email at spipes@pacificresearch.org.