Nothing against Iowa consumers, but the state’s telecommunications market as a whole might best be described as “paranoid,” says Max Phillips, president of the Iowa market for Qwest Communications International Inc.

In 1988, Qwest’s rate for basic residential service was $18. Since then, state regulators have continued to force that rate down so that consumers who don’t want extra bells or whistles pay just $12, Phillips said. At the same time, communities across Iowa are clamoring for faster Internet connections and better services.

“So we kind of have this disconnect between policy and function,” he said.

Some of Iowa’s largest telecommunications providers are hopeful a recently enacted deregulation statute may begin to provide some relief. House File 277, signed into law by Gov. Tom Vilsack on March 15, means that Qwest, along with Iowa Telecommunications Services Inc. and Frontier Communications of Iowa, will no longer be subject to rate regulation by the Iowa Utilities Board. The measure becomes effective July 1.

However, single-line, flat-rate business and residential service rates in the majority of the state’s local calling areas, or exchanges, will continue to be regulated for at least the next three years.

For lack of a better name, officials at the Iowa Utilities Board have called it the “Aunt Tillie” bill because it’s meant to protect telephone users who don’t benefit from competition among carriers in buying the popular packages of telecommunications services.

“When the Legislature took it up, initially the focus was, what should the standard be?” said David Lynch, the utilities board’s general counsel. “Then we figured out, rather than trying to determine if the market is competitive, we’ll give protection to customers who just want a single flat-rate line.”

For those “Aunt Tillies” in the state, the three regulated companies may only increase their single-line, flat rate monthly service rate by $1 per year for residential customers and $2 per year for business customers, with caps of $19 and $38, respectively, through July 1, 2008. After that date, those services also become deregulated, unless the board decides to extend regulation for two more years.

“One of the greatest things about the legislation,” Phillips said, “is that we will be able to bring rational pricing back to the marketplace.” However, Qwest will likely move forward cautiously on any price increases, but can respond to the market without the time or expense of wading through the regulatory process, he said.

“We’ll do what other businesses do: make sure we have price points that are correct for the markets that we’re in,” he said. “So we’ll be very competitive. We’ll try to show people our strength and stability.”

Additionally, the legislation requires Qwest to provide digital subscriber line service for high-speed Internet access in each of the 130 local exchanges it serves. The company currently provides DSL service in about 55 of its Iowa exchanges. Both Iowa Telecom and Frontier already have projects under way to extend DSL to all of the Iowa communities they serve.

Though Iowa has the largest number of local telephone carriers in the nation – 160 – the Iowa Utilities Board currently regulates the retail rates for just three of them: Qwest, Iowa Telecom and Frontier.

“We don’t set rates on any of the other carriers,” Lynch said, “because the little companies are typically member-owned municipals or co-ops that tend to keep their rates reasonable and typically provide very good service, too. We don’t get a lot of customer complaints.”

Two years ago, the board issued a report detailing the extent of competition in Iowa markets, which led it to issue a docket late last year that deregulated 20 local exchanges. In each case, at least one competing company had built its own infrastructure and obtained at least a 50 percent market share, proving there is significant competition and no further need for regulation.

The board is finalizing a second docket of about 30 additional local exchanges in which it will seek deregulation of the remaining flat-rate services that are still regulated, Lynch said. In each case, it will involve exchanges in which a competitor to the three large companies has built its own system but not obtained more than 50 percent market share.

Qwest, which has been pushing for deregulation in each of the 14 states it serves ever since the Telecommunications Act of 1996 was passed, is finally seeing some progress. In addition to Iowa, Nebraska, North Dakota, Utah and Idaho have also approved some form of deregulation within the past several months. The company is also nearing a settlement with Colorado regulators that would loosen regulatory requirements in that state’s urban areas.

“We’re pleased with the success that we’ve had,” Phillips said. “It’s a reaction, I think, to common sense. It’s difficult to perceive that there’s no competition in this market.”