From: Mike Godwin <mnemonic@eff.org>
Date: Wed, 10 Nov 93 12:43:21 PST
To: pmetzger@lehman.com
Subject: Re: Should we oppose the Data Superhighway/NII?
In-Reply-To: <9311102009.AA22170@snark.lehman.com>
Message-ID: <199311102040.AA21328@eff.org>
MIME-Version: 1.0
Content-Type: text/plain



Perry Metzger writes:
 
> 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.
 
This doesn't sound like a true free market to me--there are barriers other
than mere price to switching among power providers. It will be cheaper in
terms of opportunity costs to stay with the same provider.

Contrast this with long-distance services, where competition forces
providers to give you incentives to switch.

> 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.
 
I just don't see how whether we agree on the existence of natural
monopolies or not has to do with this discussion. We both think the
monopolies and government subsidies should end.

> > 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.

Okay, now let's look at Tim May's hypothetical case. Tim wants X-rated
cable. But the first nine cable companies don't want to provide it. And
the Metzger-Godwin Cable operation, which would provide it, can't get
financing. There's a market for it, but there's also a barrier to entry.
If the only way to reach that market is to invest independently in one's
own infrastructure, then that market simply goes unsatisfied--no
reasonable entrepreneur would bother.

I leave to your imagination what happens in the event that we *do* 
start the P-G Cable company, but content providers won't sell other
programming to us so Tim is forced to choose between only X-rated
cable--us--and cable services that provide other kinds of programming.
(Tim may have no problem with this, but lots of other people in our market
will want to watch CNN as well as X-rated videos.) 

And don't forget that the cable infrastructure we're talking about
duplicating here includes coax to the individual home. So, when Tim
decides to switch over to P-G, we've got to go out to his house and
install a brand-new cable and yank out the old one--we can't just
turn on the existing cable. This is the consequence of duplicating cable
infrastructure.

My understanding, by the way, is that cable in multi-provider areas is not
duplicated--that when a municipality awards a contract to a new cable
bidder, they don't yank out the old cable or add a whole new cable
infrasture. Instead, they turn the existing infrastructure over to a new
provider. 

> The first five cable
> companies get business, and profits shrink as price wars occur, and
> then few new players enter the market.

So, what happens when, in a system in which the only way one can enter as
a competitor is to invest in a whole new infrasture, and nobody will fund
it, and the existing cable companies won't carry your service? How does
the market, in a world that treats cable in the ground as somebody's
private conduit rather than as true infrastructure, provide Tim his
X-rated cable service?

Wouldn't it be better to live in a world in which the cable
infrastructure, like the telephone infrastructure, could be serviced by
competing providers, and at the individual level? We already have this
with long-distance--if I want, I can have Sprint, MCI, *and* AT&T accounts
and use them all from the same phone. Ultimately we'll have it in the
local loop.

In this world, Tim could contract with Warner Cable to get some of their
programming, and with P-G Cable to get that little something Xtra that
helps him get through the day. 

> Hell, nothing is more expensive in capital costs than starting an
> airline -- and yet people get financing for airlines all the time.
 
All this illustrates is the inadequacy of comparing air providers to
infrasture providers.

> > I regularly read Cato Institute publications and white papers.
> 
> Then I would suggest calling them up and asking them for something on
> utility regulation.
 
Why? I've already read their stuff. Reading is not the same thing as
agreeing.

> > > 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.
 
Oh, you're saying that one couldn't make a phone call from one local phone
company to another?

> > 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.

I'm not. I think they should be eliminated.


--Mike