TELECOM Digest OnLine - Sorted: Re: Broadband Competition Must Surely be Working

Re: Broadband Competition Must Surely be Working
26 Aug 2005 10:20:35 -0700

Garrett Wollman wrote:

> Because the market for residential communications services cannot
> support what economists call "effective competition". The barriers to
> entry in "local loop" services are so high that allowing bundling
> stifles competition on the services built on top.

I don't agree about the barriers. As I mentioned, our local cable
company, while still a small independent outfit, managed to go through
and wire us with coax and then come back and use fibre optic.
Granted, their work methods were far cheaper than other utilities, but
they managed to build a network. Today they offer competition for
both telephone and broadband computer connections. Somehow the cable
TV industry managed to break through those "barriers" and build itself
up from little cooperatives to major corporations.

> What should have been done back in 1984, and wasn't, is the unbundling
> of outside plant from telephone service (with both by preference
> provided by separate companies). By the late 1990s, most states
> understood this, and implemented a similar model for energy
> deregulation: you buy your energy from a competitive supplier, who
> then must contract with a regulated distribution company to deliver it
> to you.

Two years ago we had a massive blackout thanks to this "new model".
The electric power "deregulation" did nothing for consumers and was a
bad idea. The power companies have _reduced_ distribution service
quality to save money. For years, power companies traded with each
other to get the best cost of power, so for a consumer buying it
doesn't save any money. Power supply was one of the fraud's Enron was
involved in. Today the national grid is carrying far more power than
it was designed to and the risks of another NYC-Midwest blackout is
very high. Little has been done to resolve those problems.

Garrett Wollman also wrote:

> The barriers to entry in "local loop" services are so high ...

If that is true -- local loop is so hard to build -- why wasn't the
Bell System assigned the task of providing CATV service? After all, it
already had the natural monopoly local loop plant already in place.

The answer is that the barrier isn't so high and cable companies were
able to surmount it. wrote:

>> So, if a telecom provider wants to bundle services, why shouldn't it?

> We've seen the effects of that many times. And each time it involved a
> monopoly (or near-monopoly) the results were bad enough to get the
> government involved. For instance, in the old days you HAD to use IBM
> software and peripherals with your IBM mainframe. It was called
> "bundling", and the government eventually stepped in and forced them
> to unbundle their products and services.

Actually, IBM chose to unbundle on its own, the government was not
involved at that time.

Remember that customers who wished to buy the full IBM product were
still able to do so -- customers could go a la carte or take the
traditional offering. When telecom deregulated -- supposedly to give
consumers "more" choice -- we consumers actually had LESS choice. If
my local Bell company wanted to sell me long distance, they were
forbidden to do so (until very recently). I note that now I get my
long distance from them and dealing with one provider is so much
better than multiple, plus they give me a good deal.

Saying a company should be a carrier only is like saying IBM can only
sell hardware and we must buy our software from someone else, even if
we like IBM's software. By the way, the vast majority of IBM
mainframe users continued to use IBM's operating systems (OS, DOS,
CICS, and VM and their successors) to this very day.

Allowing independent manufacturers to hook up their peripherals to IBM
mainframes had its problems as well, which people forget. If IBM
enhanced its mainframes, the peripheral makers had to follow suit, but
sometimes such improvements would be enough to kill them off. If a
peripheral had trouble, there would be finger-pointing between

> Most of the "examples" you cited aren't valid analogies. In almost
> every case the "bundles" are value-added services or features that
> might make using one service slightly mor attractive than using a
> competing one. The Verizon "bundling" is much more like the sporting
> event, where you're FORCED to use and pay for the parking facilities
> associated with the event.

The line between "value added" and forced bundling is blurry. In any
event, carriers should be allowed to offer their own bundled package
and not isolated into a narrow niche.

John Levine wrote:

> My, how soon we forget. The Bell breakup was about long distance
> competition, and LD has indeed been quite competitive, at least until
> all of the LD carriers merge into one in a couple of years. But the
> breakup made no difference at all to local competition. Your local
> Bell company was and is just as much of a monopoly after the breakup
> as before.

I can get phone service from my cable company or from a cellular
company. I don't see Bell being a monopoly anymore.

You also forget that equipment ownership and other services were also
deregulated at that time.

> Because the telecom provider is a monopoly, or now maybe a duopoly.
> The only companies with wires into everyone's house are the phone
> company and the cable company, and that is as true now as it was 20
> years ago. The first mover advantage is insurmountable, and although
> it would be legal for someone to raise $100 billion and overbuild a
> new phone infrastructure alongside the one we have, it'll never
> happen.

I don't agree at all. See my other post about cable construction; they
were able to do it.

BTW, the electric companies have wires into my house, and the water
company has a pipe into my house. I understand power lines can carry
phone signals although for the moment it's not practical. But who
knows -- maybe they'll invent something to allow effective
transmission. Maybe signals could be carried along copper water pipes
as well in the future.

> The point of splitting the telco into switchco and loopco is that the
> loop part is a natural monopoly and the switchco isn't. So split them
> up, require the loopco to provide service to everyone on an equal
> basis, and then completely deregulate the switchco. That would work,
> and we'd end up with a much more vibrant market.

Who gets to decide what is a "natural monopoly"? Is the phone loop
really a natural monopoly? At one time it was, but I'm not sure any
more. On the other hand, breaking up the telco switches to support
multiple vendors was very costly and I'm not sure it was worth it. MY
phone rates went up to pay for a new telco building to house
switchgear for external companies so that someone ELSE would benefit.
That sure doesn't seem like a free marketplace to me. And as I
mentioned elsewhere, I wasn't allowed until recently to make a free

>> Otherwise we're back to the Bell System and we must wait for the
>> government to tell us what we may and may not have.

> Uh, no. Please, put down the kool-aid and think about what's really
> going on.

Sorry, but outsiders are attempting to dictate to me -- as a consumer
-- what business arrangements I want to make. You people claim it
will be "better" for me if you do so.

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