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August 04, 2007

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Man, this stuff makes my head hurt. Once again – you’re doing an awesome job covering it. Kudos.

One question – when might a monopoly actually be a good thing? This may wrap around to the discussion the other day on private vs. government control of what you could call national infrastructure…

I had no problem with “Ma Bell”. For the youngsters out there, not only have I used a rotary dial phone, but when I was growing up we actually had a “party line” (not as much fun as it may sound). We were pretty poor, and there were times when other utilities were shut off due to lack of payment, but never our phone service. Basic service in my lifetime has always been pretty cheap. Considering what you get and what it takes to deliver it, it may be one of the best bargains available.

I never saw much benefit from breaking up AT&T. I tried the new guys – Sprint, MCI, etc. and found out that they all suck. I always ended up back with the big guy. I’m a diehard Verizon customer today and you couldn’t pay me to switch. I get unlimited land line, wireless, and DSL for less a month than I spend on cigarettes and it is 100% reliable.

Some of this stuff almost seems like “affirmative action” for wanna-be Telco companies. I honestly don’t get it. If one company can provide cheap reliable service for the whole country, why should the government intervene? Honest question – I understand of course why a monopoly can be bad, but in the case of AT&T I never saw them being bad. I’m not sure I can think of another private company that did so much for national infrastructure. And even as the poor as we ever were, we had a piece of that.

Thanks for the update. I'm now retired but no so long ago I was a network geek and your posts bring back memories - fond or sometimes not.

One comment. In built-up areas, we found it wasn't that unusual to find other providers. There's other right-of-ways under the streets and i.e. cable companies can also provide high-speed access, especially for Internet access. Still your general point is correct.

I generally think deregulation has been a good thing, but the fly in the ointment has always been the "last mile". I've generally thought that because this last mile has been legally controlled, enforced by the government, that the government ought to regulate its use.

cw - exactly. i'm certainly prefer deregulation over regulation. my gripe however is that we should focus more carefully b/c different parts of the network call for different solutions. imposing some "foundational" regulation such as net neutrality or special access allows dereg to happen elsewhere.

OCSteve -- it's a very good question adn it was debated for a very long time. and that was exactly the argument of the old Ma Bell. In return for the monopoly, they provide cheap (subsdized) basic service. i guess the point is that the old Ma Bell stifled innovation. for instance, without carterfone, there may not be things like faxes and PCs. also, the phone companies didn't develop DSL (even though they had it on the shelf ready) until cable entered the internet market. but anyway, these are all key questions that smarter people than i have debated for a long time

cw - one other point. even in the built up areas, you're right that there are competitive fiber rings, etc. BUT BUT BUT, often even these facilities need special access facilities for the last "mile".

when the bells asked for deregulation on a number of fronts, they said exactly what you said (different things built up by competitors). the problem is that they didn't go all the way. you just need to control one link in the chain.

also, if you want to get really wonky about it, the old MCI and AT&T were large national competitive providers of special access. the market is now much more consolidated given that these companies have been acquired by the incumbents (Verizon and SBC/AT&T)

often even these facilities need special access facilities for the last "mile"

Very true. But the "other guys" were pretty clever about finding conduits into buildings. Sometimes too clever. I can't remember many of the details, but as an example I recall one deal that involved the city water department.

To answer the obvious question, the pipes did burst one day. That in itself didn't hurt the fiber, but the repair action certainly did. Fiber is no match for guys named Bubba armed with cutting torches.

And as long as you have line-of-sight to someone's pop, you can always try wireless and worry about birds and bandwidth.
Still, your original point is valid for probably 90% of the situations.

We pretty much gave up trying to circumvent the phone company, unless we needed redundant facilities and they couldn't provide them.

Wallsten breaks out channel termination deregulation from dedicated transport/special access deregulation. Only the latter show significant results in his very shaky regression. I'm not sure what this means, but I think it's not good for his argument.

On the one hand, I'd like to read this paper more carefully, but OTOH I don't want to. That probably puts me in the same position as a lot of the staffers of various sorts who deal with this stuff.

yeah, that stuff is unfortunately greek to me. it doesn't surprise me though. someone probably came to him and told him to do somethign to help with special access and he threw together this crap.

if he got called out publicly more often, it would help. for one, he would know he couldn't do this type of crap

There was actually a very lively and interesting discussion about this on Redstate recently, in Sen. Durbin's thread. My personal opinion is that the telco and cable infrastructure needs to be nationalized, with the most rudimentary, basic phone and internet service being a subsidized government service. Anything beyond that bare minimum would be provided by service providers, who would lease the rights to provide services over this infrastructure, the way everyone else currently pays the telco and cable monopolies extortionate amounts to provide services.

It's a solution with its own problems, and it's guaranteed to make most of the free market religionists howl the S-word. But it's about the only way I see to lower the barrier to enter the internet and telephone services market in such a way that meaningful competition can occur. Whoever owns the local infrastructure has an unbreakable choke-hold over the local market, and that's bad for consumers in every part of the country.

Catsy: It's a solution with its own problems, and it's guaranteed to make most of the free market religionists howl the S-word.

Ooookay… I’ll step up.

Damned socialists…

;)

Damned socialists

*grin* I still reject the premise that that's a bad word. I don't have any particular ideological attachment to socialism, capitalism, or any other system. I think most systems have good ideas, and some of these ideas work better than others. We've had a lot of well-earned success with free market capitalism, but it's not without its problems either. Some of those problems are ameliorated by a healthy contribution of concepts commonly considered "socialist"--along with many other sorts--to the mix in the right places.

Anyway, I know you were yanking my chain, so soapbox off. ;)

OCSteve - "One question – when might a monopoly actually be a good thing?"
Certainly prior to Reagon, and possibly even up to W, I would have said that if one can maintain a monopoly without violating anti-trust law, then the monopoly is probably not a horrible thing.* With W's assertion that only price fixing cases (i.e. cases of collusion, not monopoly) are going to be tried, that goes a bit out the window.
But lets pretend that we have a properly functioning anti-trust regulation. The simple theory of anti-trust, as I understand it, divides behavior into two different categories based upon intention. If one were to take an action which increases one's profits while holding his rivals behavior constant, then any anti-competitive results of this action are hard to critisize. For example, in a market with fierce price competition, a low cost firm may end up charging such a low price that nobody else can compete. That's okay. They achieved their monopoly because of lower costs, or (as put forth in the Standard Oil case) because of competition on the merits. On the other hand, a particular action may actually be bad for a firm (perhaps simply from being costly) but may benefits the firm by changing a rival firm's: actions, costs, quality. This is not competition on the merits.
Viewed simply, competition on the merits should generally make the world a better place. In the above example it reduced the costs of production. However, the second type of behavior is simply bad for society. For example, makig a rival's product worse hurts those who consume that product. However, it has a more insiduous effect. If a firm needs to engage in this type of behavior, then it is a fairly safe assumption that they would not be able to maintain their market position if they were not to engage in this behavior and instead were to compete purely on the merits of their goods and cost structure. Consequently, consumers may actually be recieving lower quality and higher cost goods than if other firms were not being detered from entry (or expansion.)Worse, from a dynamic point of view, with this deterence present, there is a smaller return for innovation in this market, and consequently less innotation.
It used to be that anti-monopoly cases were decided on, more or less, the above distinction between types of behavior. If a firm achieved and maintained a monopoly by competition on the merits, then that was okay. If a monopoly were achieved or maintained by the use of the second type of behavior, or by behavior which was simply illegal, then the monopoly itself was illegal. Of course, we can't see intentions, so instead incentives were examinend, and arguments were presented based upon the intentions which were implied by the incentives.
Regarding ATT, they were clearly involved in the second type of actions. For example, long distance services need to hook up with the local service hubs. ATT instructed their employees to make the MCI connections poor, so that noise would be added over these long distance lines.
As regards the quality provided, I think that ATT realized from the getgo that their cost structure prevented them from competing via price. Instead, they have tried to maintain a reputation for quality. But personally, I think that the level of quality that they provide is a response to competition. I too am old enough to remember Ma Bell, and I don't recal especially good service prior to the break up.
*Of course, I ignore something quite relevent to the current discussion. In particular, there is an argument that if a particular good requires an expensive network, then it might be best to not duplicate this network needlessly. Hence, we might wish the network provider to act as a monopolist. However, we probably want to regulate him. More to the point, much of the above argument continues to apply. If someone else can duplicate the network and enter the market profitably, then that means that prices are too high, and we certainly don't want to allow the incumbent to deter entry via something other than competition on the merits. Also if we are not going to regulate the firm, and there are not really srong arguments for why vertical integration is a good thing, then we should not allow the natural monopoly in the network to be extended into other markets. In particular, just because it might make sence not to have duplicate land lines all over the place, does not mean that we should allow the firms owning those line to prevent other firms from providing cellular service. There might be an argument for why, from an efficiency point of view, we want to allow vertical integration between land line providers and cellular providers. However, I have not heard it. Since the anti-competitive consequences are pretty clear, it seems incumbent on the land line providers to put forth a convincing counter argument.

ATT instructed their employees to make the MCI connections poor, so that noise would be added over these long distance lines.

ATT also argued that other companies' equipment was unreliable, and might damage the entire ATT network if connected. The Carterfone case dealt with this issue.

The natural monopoly Jack Robles discusses in his last paragraph is really not "merit-based" so much as "technology based." It comes up in a situation where each customer the monopolist adds costs less than the last one, usually because there is already a huge network in place. This makes it impossible for a competitor to enter the market. The usual example is utilities of various sorts, which of course were historically subject to price regulation.

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