From: "Perry E. Metzger" <pmetzger@lehman.com>
Date: Wed, 10 Nov 93 11:03:59 PST
To: Mike Godwin <mnemonic@eff.org>
Subject: Re: Should we oppose the Data Superhighway/NII?
In-Reply-To: <199311101826.AA19786@eff.org>
Message-ID: <9311101859.AA22080@snark.lehman.com>
MIME-Version: 1.0
Content-Type: text/plain



Mike Godwin says:
> > Fiber is compact -- five or
> > even twenty cable companies could coexist happily in New York (where I
> > live) if the city didn't grant "franchises", which it charges
> > exhorbitantly for. With large scale competition between cable
> > companies, monopolies would no longer be a problem.
>  
> Which cable company has to eat the cost of digging the original
> groundwork? Or are you saying that every new cable entity will have 
> to lay its own infrastructure?

Well, in NYC, the utility tunnels are municipal, so its a question of
leasing a slot from the city. (Frankly I wish the tunnels were
privately held, but thats another story.) In most rural and suburban
areas in the US utility poles are still used and its a question of
leasing slots from the owners of those (which is easy since fiber is
quite lightweight, is typically strong when kevlar reinforced, and
presents little or no lightning hazard.) 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.

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, 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.

> 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. 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. The reasonable conclusion the
data leads to is that the only reason such things don't happen much in
the U.S. is that in most places competition is prohibited by law.

> The only reason the first cable companies even invested in laying cable is
> that they were guaranteed a local monopoly.

Well, the fact that multiple cable companies do in fact exist in many
places gives lie to this premise. 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.

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. I've checked up on many such
claims, and have yet to see one where the numbers or the facts
actually backed up the claim. The practice of granting monopolies was
started in England under the Tudors as a way of earning money for the
crown (which it still is in many states if you look at franchise fees
and utility tax structures). There was initially no pretense about the
practice being needed to preserve certain businesses -- that, of
course, eventually arose as an excuse and is perpetually the
monopolists argument for why competition should not be permitted.

Ultimately, one must ask the hard question of the monopolists. "If
competition is impossible in this industry, or if competitors could
not raise money for infrastructure, why do you need legal protection
from competition? If competition it would render the business
unprofitable, why would people seek to compete with you?"

> These are the kinds of issues that need to be addressed as we move from
> monopoly to free-market competition--how do we correct for the distortions
> caused by the initial government intervention in the market?

Eliminate the intervention by stopping the monopoly?

Perry