From: "Perry E. Metzger" <pmetzger@lehman.com>
Date: Wed, 10 Nov 93 12:13:28 PST
To: Mike Godwin <mnemonic@eff.org>
Subject: Re: Should we oppose the Data Superhighway/NII?
In-Reply-To: <199311101926.AA20523@eff.org>
Message-ID: <9311102009.AA22170@snark.lehman.com>
MIME-Version: 1.0
Content-Type: text/plain



Mike Godwin says:
> > Well, in NYC, the utility tunnels are municipal, so its a question of
> > leasing a slot from the city.
> 
> Is that true? How many slots are there? Is access to the slot unregulated?

Well "slots" is a misnomer. There is space in the tunnels. They were
designed for holding lots of phone cable, much of which has dried up
since the copper has started to be replaced with fiber. Fiber takes up
extraordinarily little space, so unless hundreds of companies wanted
to use the same space there wouldn't be real trouble. The space is
both directly and indirectly owned by the city -- some of it is in the
form of subway tunnels and subway access tunnels that are officially
controlled by the MTA, but are de facto controlled by the city.

And no, they have to like you to let you use them.

> > In some areas it might mean
> > digging new infrastructure -- modern cable laying equipment has
> > dramatically reduced the cost of this, especially for buried fiber
> > optics.
>  
> The question is less one of creating new conduits than of seeing that the
> conduits already in place (invariably under a government regulatory
> regime, if not an outright monopoly) get used to their fullest potential.
> Perry, you think that just letting things happen alone means that
> someone's going to give you purchasable video uplink. I'm glad to hear it,
> but I don't share you belief.

I can buy one now. It expensive, but the price is falling. Lehman can
purchase lines from Nynex, Teleport, Metrofiber, and several other
vendors. Vendors WANT to be in the business -- it makes them money,
after all. Car companies don't conspire to avoid selling people cars,
and I doubt deregulated carriers would spend their days trying to find
ways looking for methods to avoid selling people services. What IS a
problem is that many of these carriers can't yet gain access to
customers because of regulations. Manhattan Cable has fiber to every
block in the city -- but was forbidden by the city from competing with
the phone companies for data transmission services.

Indeed, the only companies I ever see looking for ways to avoid having
to provide services are regulated monopolies.

> Where we do agree, of course, is that access to the cable part of
> the infrastructure (whether by building new conduits or allocating
> sections of existing ones) shouldn't be subsidized by government
> money, except of course to the extent that the government is buying
> such services for itself.

Yes.

> > In practice, none of this is a real problem. Many areas DO have two or
> > more cable companies because there is no local prohibition on
> > competition ....
> 
> I wouldn't say this is accurate. Even in multiple-cable areas, I
> understand, the cable companies have government licenses and operate under
> government regulation.
> 
> In the Boston area, there are multiple cable companies, but you can't
> choose which one your particular home will use if you subscribe to
> cable.

The same is true in New York, where there are multiple companies
serving distinct areas of the city.

This is not universally true, however. There are some areas where
multiple cable companies provide overlapping service areas.

> >, and a few areas even have multiple electric companies
> > because there are enlightened governments that permit such heretical
> > violation of the "natural" (read, government granted) monopoly thesis.
> 
> Do those electric companies each have different wires?

I believe so, since it would otherwise be difficult to meter the power
usage. If both companies shared a customer grid, how could you know
who's power was being used? (Power companies do have a grid for
transfering power between their generators, but thats another story.)

> So that if I move into the house where you used to live, and you
> bought power from company X, I can call up company Y and say "You're
> supplying power here now"?

Apparently.

> How is this implemented.

I imagine its much like the way one switches heating from oil to gas
-- someone comes to your house and does a bit of physical work,
usually leaving the old infrastructure in place.

> I don't think discussion of "natural monopolies" is relevant here, because
> it doesn't matter whether the monopolies that exist are natural or not.
> They're here in any case.

Ah, but it is important. If a monopoly is an artificial creature of
government, and not natural, that means that prices are being
artificially kept high BY THE GOVERNMENT. That also means that your
dream of universal access is being blocked.

> > > The capital costs of that create an immense barrier to market entry,
> > > and ease of market entry is a pre-requisite for free-market
> > > competition.
> > 
> > Its not a real barrier. Capital costs for such structures are
> > typically sunk via mortgage bonds -- its possible for most utilities
> > to raise vast amounts of money in the debt markets.
> 
> I disagree that it's possible for all cable utilities to do this. If
> you're the second cable system in a duopoly, maybe. But I don't know of a
> debt market that will buy the bonds of the tenth cable company to lay
> cable in a certain area.

You are certainly correct -- but thats part of the way the free market
works. When you can't get financing for your project it probably means
people don't believe there is a market any more. The first five cable
companies get business, and profits shrink as price wars occur, and
then few new players enter the market. I suspect the first several
players will get money, and thats all you need.

Hell, nothing is more expensive in capital costs than starting an
airline -- and yet people get financing for airlines all the time.

I'd leave the worries about how to finance these things to the
investors, who are after all the people who's money is at risk.

> > If you wish, I can
> > direct you to people at the Cato Institute who can give you plenty of
> > good data on why there is no legitimate reason why two or more phone,
> > cable, electrical, or even gas and water companies couldn't operate in
> > most areas -- I mean hard data down to the costs involved and
> > potential profits and the way that competitive utilities have
> > functioned in areas permitting them.
> 
> I regularly read Cato Institute publications and white papers.

Then I would suggest calling them up and asking them for something on
utility regulation.

> > The fact that multiple phone
> > companies used to operate in the early days of the century before the
> > government put a legal end to that also tends to discount this thesis.
> 
> They used the same wires, Perry.

Nope, they didn't. If necessary, we can dig up references.

> 
> > I've heard the argument given time and again about dozens of
> > industries that "The X industry requires a government monopoly to
> > operate" or "The Y industry needs subsidies or we would be left
> > without a Y industry" and the like.
> 
> This seems to be a digression. No one around here is arguing for
> government monopolies. At least not so far as I can tell.

Ah, but you have been arguing against the elimination of state granted
cable monopolies, haven't you? If not, please let me know because then
there is no reason for me to argue.

Perry