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Because the telcos are currently enjoying a "natural monopoly". The cost of entry to become a telco is so high, that normal competitive forces do not apply. I

• fleitz 13y ago
  Telecom isn't a natural monopoly, it's a government sponsored cartel.
  • jjoonathan 13y ago
    While you are correct that telcos currently enjoy a certain degree of regulatory capture, they are also natural monopolies/oligopolies in the sense that competitors have an astronomical barrier to entry. It's tempting but naive to think that all we need to do in order to see the market right itself is to eliminate existing regulations. What we actually need to do is to change regulations to encourage competition, both by eliminating explicit monopoly rights and by mandating and/or price-controlling B2B bandwidth/traffic sales so that incumbents can't kill new entrants without beating them on a level playing field. Forcing telcos to act like "dumb pipes" is one type of regulation that forces them to compete against each other (otherwise they just lump their market power with media providers until they are once again too big to challenge).
    • argumentum 13y ago
      > .. by eliminating explicit monopoly rights and by mandating and/or price-controlling B2B bandwidth/traffic sales ... Are you willing to try the former before the latter? If so, I don't think we're far off .. I'm not an absolutist, if there is a compelling case after the artificial constraints are removed, then I might consider state intervention as a last resort. But not before giving the free market a fair shot.
      • jjoonathan 13y ago
        In principle, I agree with you. In practice, I'm hesitant due to the analogy with the health care market. We've been giving them "just one more chance" to find the set of market regulations that promote progress for the last few decades at the price of trillions of dollars and tens of thousands of lives every year (in comparison to established single-payer systems). Without a concrete stopping point and with LOTS of money behind the lobby to perpetuate a pathological free market experiment long past its due date, I'm inclined to fight for utility regulation from the getgo.
    • awinder 13y ago
      "just lump their market power with media providers" is interesting considering that's Comcast, today. In a world without net neutrality, how do you stop Comcast from delivering NBC video content on the fast pipe, while degrading the performance of it's competitors?
• jjoonathan 13y ago
  Exactly. Competition is the "active ingredient" in the free market, and "freedom" from regulation does not always suffice to guarantee competition. Utilities are the textbook example.
  • nickff 13y ago
    The utility market used to be competitive, then municipalities began "licensing" them, which eventually led to the current state of affairs.[1] Even lighthouses, which have large externalities, can be built and operated without government intervention, as they did for a very long time.[2] [1]http://www.econlib.org/library/Enc/ElectricityandItsRegulation.html http://www.econlib.org/library/Enc/ElectricityandItsRegulati... [2]http://en.wikipedia.org/wiki/The_Lighthouse_in_Economics http://en.wikipedia.org/wiki/The_Lighthouse_in_Economics
    • Spooky23 13y ago
      The utility market moved towards a regulated model in the very early days of electric and gas transmission. There were lots of really good reasons for this around safety, universal service and public good. Most states today have a model where delivery is tightly regulated, but electricity generation is a competitive marketplace. At the end of the day the government exists to serve the public interest.
      • Artistry121 13y ago
        Government exists to organize society. Feudalism served its lords, monarchy served its kings and nobles, empire its emperors, and democracy, occasionally, its people. Government has served a variety of masters in the past - but rarely purely the public interest.
        • andrewflnr 13y ago
          It should serve the public interest, which is good enough for policy debates.
• argumentum 13y ago
  Not at all "natural". The cost is so high partially due to special agreements between these corporations and governments, from local agreements to lay down fiber, to national agreements regarding the use of the electromagnetic spectrum.
  • jjoonathan 13y ago
    US Telcos = Natural Monopoly + Regulatory Capture > The cost is so high partially due to special agreements This is true, but it doesn't contradict the fact that telcos are also natural monopolies. Let's play a game: pretend that all of these special agreements have suddenly become invalid and the market has become deregulated. Assume you have (or can acquire) the technical expertise to challenge them. What's your business plan?
    • Benferhat 13y ago
      You love the phrase "regulatory capture", don't you? :)
      • deleted 13y ago
        [deleted]
      • jjoonathan 13y ago
        Not as much as I despise both the thing it refers to and the propensity of self-styled libertarians to pretend that it's the only problem in the world :)
    • argumentum 13y ago
      There's a lot of ambiguity in your scenario. Do I get equal access to the existing infrastructure (presumably paid for by the existing monopoly)? Assuming this deregulation comes along with some law or judicial ruling that no local government can create such an ongoing monopoly, there would likely be created a separate industry that simply builds infrastructure at some price to the locality with no continuing agreement. Second, who am i? A startup? Since this is a fantasy world, I imagine I'd have invented some new tech that would substantially reduce the cost of operating an ISP. I'd pitch that to investors and raise enough to get of the ground? But that's only one way I might enter the market. I may be Google, or even an existing telco looking to expand my turf. My overarching answer is simply: I don't know, but let's get rid of the artificial constraints on the market and see what results. In most unregulated industries, quality rises and price falls (in the long run). There may be exceptions, but which industries do you see this not happening: 1. Finance 2. Medicine 3. Utilities 4. ? All industries with close connection to the state. I'd wager that sans these connections, things would be a lot different.
• foobarian 13y ago
  I thought it was the other way around, i.e. the telcos were given a monopoly on the wires, in order to avoid a bunch of different companies all running their own cables and turning the streets into an ugly mess. In exchange there is a bunch of regulation such as they are required to provide service to rural areas at a loss.
  • rayiner 13y ago
    Its both. Monopoly with infrastructure providers is inevitable, so in many cases the government created regulated monopolies instead of letting unregulated monopolies arise naturally. That said, telcos are not monopolies. They're in a hybrid state of regulated competition.
• shit_parade 13y ago
  hard to know if the 'cost is too high' or not since regulation makes it impossible for companies to compete. Know what cost is too high? State enforced monopolies.
• baddox 13y ago
  The problem is that governments forcefully prevent competition and call that "natural monopoly." Personally, I would call that the opposite of a natural monopoly. The term is used very confusingly. Wikipedia gives one definition, which I think is reasonable, which is basically a (theoretical or real) environment in which a single producer maximizes efficiency. But the term used by governments and their supporters is something completely different, where the government forcefully prevents all producers but one from operating. It's silly to talk about telcos "enjoying" a "natural" monopoly, when the airwaves are one of the most tightly-regulated industries, and in addition to being expensive for a competitor to enter the market, it's generally illegal.
  • ghshephard 13y ago
    The "natural monopoly" of telcos and other utilities comes from the limited amount of physical space available to run water pipes, electrical lines, and data lines. Not to mention the limited opportunity to install those services without causing disruption (typically when the land is first prepared) It's not the case that everyone can simply spend the same amount of money as the first utility, and replicate it's services in order to compete.
    • baddox 13y ago
      You're talking about the valid theoretical concept in economics, not the government-enforced monopolies that we actually see in practice.
• Daniel_Newby 13y ago
  Telecom is not a natural monopoly. My little flyover city has three wired telcos, and who knows how many wireless ones. If San Francisco does not have hundreds of telcos, it is because somebody rigged the game. Another disproof of natural monopolization is the operating costs. If a monopoly could profitably run handmade cables through the air to an office full of operators, then modern buried cables and automated switches can support several competitors in every large market. Again, lack of competition is actually proof that the game is rigged. Anybody who supports network "neutrality" without trust-busting has AT&T's dick in their mouth.
• jimbokun 13y ago
  If by "natural monopoly" you are implying a monopoly arising without government intervention, I'm pretty sure you are completely wrong on that point. Telecommunication companies need permission to rip up streets and run wires, or run wires on poles, or exclusive rights over parts of the electromagnetic spectrum, or put satellites into the right geosynchronous orbits to broadcast signals to consumers. (I'm curious to know if I'm wrong about any of these. For example, did Dish/DirecTV require permission to put their satellites in place? Do they even own the satellites.) All of these things require specific government enforcement. So every telecommunications company is pretty much created through government regulation. So the idea that backing the wishes of telecom executives is somehow pro-free-market is completely farcical. Free market activity has had almost nothing to do with the current U.S. telecommunications industry. This is just yet another industry asking for a windfall through government acting in their favor, similar in spirit to the financial industry bail out.
  • thatthatis 13y ago
    A natural monopoly is a well defined term in economics. A natural monopoly occurres when there are massive fixed costs but insignificant variable costs in delivering a service. The economics of the industry naturally lead to one firm providing the service, a monopoly.
  • AnthonyMouse 13y ago
    > If by "natural monopoly" you are implying a monopoly arising without government intervention, I'm pretty sure you are completely wrong on that point. The reason telecommunications service is a natural monopoly is that the fixed costs are extraordinarily high and the variable costs are trivial. In consequence it is not profitable to build a competing network once one already exists, because all you accomplish is to lay out an enormous capital expenditure in order to enter into an aggressive price war with the incumbent, since making $10/month from a customer that costs you less than that to service once the network is already built is still more profitable than losing that customer to the competitor and making $0. So the result will always be the same: Either there will be a monopoly (or equivalently a cartel), or there will be a price war until every competing provider either goes out of business or joins the cartel and it reverts to a lack of competition. And prospective market entrants understand this dynamic ahead of time and choose not to participate. The only reason we even have the duopoly that exists today instead of a straight monopoly is that the two networks were originally built to provide different non-competing types of service, so now they effectively act as a cartel with the knowledge that no one else is likely to enter the market. It is certainly true that government intervention has been involved in the creation of that infrastructure -- it's plausible to say that it wouldn't have been cost effective without it. But that only means that in the alternative "free market" for telecommunications service, the infrastructure cost would have been even higher because the provider would have had no subsidies and would have to buy all the land without eminent domain and pay off holdouts etc.