Why States Must Stop Treating Your Smartphone Like A Dumb Rotary Phone

Plain old telephone service (POTS) has been dying a slow death in the United States since the turn of the century. The number of POTS lines peaked at 192.5 million in 2000; by June 2024, only 7.6 million residential POTS lines remained. For much of the 20^th century, almost every American household used only POTS to make a phone call. Now, only 1.3% of households rely on POTS to do so.

What happened? Consumers flocked to mobile and Voice over Internet Protocol (VoIP) – advanced platforms that did not exist during the heyday of POTS’s monopoly reign. The total number of mobile telephone lines in the U.S. surpassed POTS in 2004. Today, there are more than 388 million mobile lines in service. The number of VoIP lines passed POTS in 2013. There are now more than 64 million VoIP lines in service.

This is not news to the tens of millions of Americans who cut their telephone cord years ago and embraced mobile telephony or VoIP and all the advanced features they offer, like nationwide calling and the go-anywhere convenience of a cellphone. Unfortunately, for some state policymakers, the horse and buggy that is POTS continues to loom large, shaping their misinformed view of the advanced communications sector. Worryingly, some states have not only resisted removing outdated POTS laws from their books; they are actively seeking to extend those rules to new communications technologies, which have thrived in a competitive marketplace governed by a deregulatory framework. By doing so, states will undermine investment in new networks, increase prices, and ultimately harm consumers. None of this is good for America. Backwards-looking, heavy-handed regulation never has been.

Go Your Own Way…Or Maybe Not?

When it comes to applying old rules to new communications technologies, California has been in the vanguard. It has refused requests to roll back POTS-era rules; sought to regulate VoIP like POTS; and is finalizing rules that would hold competitive offerings like mobile and VoIP to a more punitive version of service quality standards originally devised for Ma Bell. At the same time, though, the Federal Communications Commission (FCC), along with dozens of other states, have been actively engaged in regulatory modernization aimed at removing POTS rules to incentivize and accelerate the deployment of modern networks. California’s approach is misguided and fails to put customers first.

States sometimes choose to forge their own path on certain issues. This seems to happen more often in California than elsewhere. Indeed, the state has a history of choosing an alternate path on issues like vehicle emissions and data privacy. In many of those instances, however, California framed its actions as necessary to either fill a perceived gap left by federal inaction, as it did when it passed a privacy law after years of failure by Congress to do so, or to go above and beyond existing federal rules, as it has done with vehicle emissions (California’s federal waiver allowing it to impose stricter emissions standards is at risk of being revoked).

On issues of national importance, outlier approaches create collective action problems, which stifle progress towards achieving a shared federal goal. Assuring an orderly and timely transition away from POTS has been a national imperative since the early 2010s, when the Obama-era FCC began taking steps to relieve POTS providers of monopoly-era obligations so they could invest in modern networks and improve the services that consumers are actually using. Each subsequent FCC, under both Republican and Democratic leadership, has taken additional steps down this path. This reflects and furthers the country’s bipartisan light-touch approach to regulating advanced communications platforms at a national level. Consistency and predictability are critical to maximizing investment, innovation, and overall consumer welfare gains.

California has lost its way. Its proposed service quality rules illustrate just how far outside the mainstream the state is on these issues and how continued pursuit of its unique – and highly regulatory – agenda for communications services could impede national transition efforts.

Welcome To The Hotel California

The notion of service quality rules might sound innocuous, but the rules proposed in California are incredibly exacting and could end up harming consumers rather than protecting them.

In a nutshell, California seeks to regulate voice service quality by applying standards governing how providers of all ilk – POTS, mobile, and VoIP – address almost every aspect of service, including how quickly they act in response to an installation request; reporting on and fixing outages; crediting customers for service disruptions; and how long it takes for a customer service rep to pick up the phone. In many cases, the proposed rules are stricter, and the penalties more punitive, than the rules devised just for POTS, the antiquated technology deployed and governed as a natural monopoly service.

Where’s the beef? Numerous stakeholders of all sizes have faulted regulators for failing to provide compelling data demonstrating actual negative trends in service outages or degradation in service quality. For example, many have argued that the outage data cited by regulators in support of their rules generally fail to account for the underlying cause of the disruption. Oftentimes, a mobile or VoIP outage is attributable to a loss of electric power, a common occurrence in California that is beyond the control of communications service providers. For these reasons, the FCC has rightfully forged a different approach, one that supports investment in network reliability and encourages collaboration among communications providers and electric utilities to restore service.

At the same time, there appears to have been little effort by regulators in California to weigh the compliance costs for providers against the benefits the proposed service quality rules purport to deliver to customers. This is especially relevant in the context of POTS, the user base of which is rapidly shrinking. Per the latest FCC data, there are less than 600,000 residential POTS subscriptions in California (population: 39.4 million). POTS prices will inevitably rise as service providers pass through some portion of their higher compliance costs to a smaller number of customers. Meanwhile, the compliance costs for newly imposed standards on mobile and VoIP providers will also likely be passed through in part to customers, resulting in higher prices for them as well.

To the extent some of these costs cannot be recouped, there will be less capital available to service providers to invest in next-generation networks or to invest in the same customer service tools the rules claim to incent. This ultimately harms consumers and frustrates timely realization of an overarching goal to move on from POTS so that new platforms are not burdened, directly or indirectly, by monopoly-era rules.

What’s Next

California is not alone in dragging its feet on the transition away from POTS. Numerous states still have POTS-era rules in effect. Some, following California’s lead, are also exploring whether to regulate broadband, VoIP, and mobile like traditional telephone service.

Inevitably, these actions will trigger lawsuits, with service providers arguing that federal law limits state authority to regulate non-POTS services. Even in the context of POTS, arguments could be made that state efforts impeding fulfillment of national goals for the POTS transition might also be susceptible to preemption.

A sounder approach would be for state policymakers to listen to what consumers are telling them about their communications preferences and react accordingly. In the case of voice communications, consumers have been voting with their feet for years. Unlike 50 or 100 years ago when POTS ruled the world, there is no shortage of options for people to communicate with each other. And now with satellite “direct to cell” technology rolling out alongside grant funds via the Broadband Equity, Access, and Deployment (BEAD) program, which will facilitate universal broadband availability, there are few parts of the country where some form of non-POTS communications platform is unavailable.

In this new environment, providers are aggressively competing on service quality, speed, latency, price, and a host of other service parameters. Regulation is not a bad word, but in the advanced communications arena, the type of regulation being considered by California and others is simply not necessary. If a customer feels let down by one voice or non-voice service, they can easily switch to another. And that is exactly what they are doing. Any action that impedes these dynamics should be flatly rejected because unnecessarily regulating a competitive marketplace will only harm consumers.

States might also take a page from the FCC and adopt a “delete, delete, delete” mindset and begin to actively review and repeal antiquated regulations. Regulators can do their job if they deregulate. There is no requirement that they must regulate just for the sake of regulating.

Finally, the spate of recent regulatory actions in California only adds to the urgency for Congress to update federal communications law. This is long overdue and critical now that the Supreme Court has made clear that administrative agencies like the FCC can only act according to specific Congressional delegations of authority. An update that empowers the FCC to facilitate a smooth transition from POTS by allowing it to preempt burdensome and backward-looking regulatory actions like those in California is needed.