Thursday, April 21, 2005

Incumbents are Anti-Competitive! GASP!!!

In the "Incumbents in Wonderland" — up is down, black is white — world of the opponents of the LUS fiber project, multi-billion dollar companies are imperiled by the actions of a municipally-owned utility in a community of about 115,000.

In that world, the entry of that municipally-owned utility into the information business of voice, video and data services will put those incumbents at a competitive disadvantage. Well, the superior infrastructure will give LUS an advantage because, over that network, it will be able to deliver services that the incumbents can only talk about but not deliver.

What really has the incumbents worried is the presences of any true competition in the market at all.

To appreciate this, one need look no further than the dockets of the courts and the Federal Communications Commission since the Telecommunications Act of 1996 became law. Incumbent phone and telephone carriers have spent hundreds of millions of dollars in attorneys fees fighting to make sure that they did not have any competition.

The cable companies have been fighting since the late 1990s to keep competitive Internet Service Providers from having access to their networks. That is, when you buy high-speed Internet service from a cable provider, you are paying for more than just bandwidth. You're also paying for their role as an Internet Service Provider. The cable companies don't want providers like Earthlink, or Yahoo! others to get a piece of your business. There is a case in the U.S. Supreme Court now that will render a final decision on whether the cable companies can, in fact, exclude other ISPs from their networks.

The phone companies have spent even more money on attorneys fees, congressional campaign contributions (even hiring the children of key congressmen) in a mostly successful effort to keep competitors off their networks as well.

Now, members of both the phone and cable camps will tell you that they really just want "a level playing field." This is code for "incredibly high barriers to entry" in to their respective fields. That is, by closing their networks (which were built when they were regulated monopolies) to competitors, the phone and cable companies have relied on the high cost of network building to protect them from genuine competition — while mouthing platitudes to the virtues of the competition which they actually detest.

The anti-competitive nature of phone and cable companies is also being driven home by the recent spate of merger activity which has surged in on the telephone side of the business, but which is continuing apace on the cable side as well. This Washington Post article details the players in the recent telecom mergers, but makes no mention of the cable consolidation which is also taking place.

The consolidation in the industry has loaded the remaining incumbents with debt incurred to buy others in the field or, as in the case with Cox, to buy out all other shareholders and take the company private. Is it just a coincidence that this consolidation and the accompanying accumulation of debt have occurred during a time frame when the U.S. has fallen to the rank of 14th among countries in broadband access — even as defined by the diluted status of the phone companies?

Think of it this way: as large as these companies are, they do not have unlimited resources to draw upon. Committing billions to mergers and buyouts consumes resources that otherwise might have been used on more essential tasks like, say, modern network infrastructure like fiber to the home.

So, the top priority of the incumbents has been to eliminate competition at the same time that many companies and communities recognized that new network infrastructure and affordable bandwidth were essential for their ability to compete successfully in an information-driven, global economy.

This misalignment of the priorities of the incumbents with the priorities of their customers (and the communities where those customers reside) has real economic consequences. American companies are finding themselves at competitive advantages to their better-connected foreign competitors. Another impact is that companies are choosing to locate more operations in those areas where bandwidth is more abundant and more affordable.

At Wednesday's TechSouth luncheon, Mark Marcin of George Lucas' Industrial Light & Magic noted that is building a new animation campus in Singapore. One of the drivers in that process was the fact that Singapore has a robust network infrastructure — including fiber to the home.

What so galls the incumbents about LUS and other municipally-owned network builders (yes, even those settling for 'better than the incumbents' WiFi or WiMAX wireless) is that they have the resources to build those networks. The munis (short for municipals) also have the element that the incumbents don't — interests that are aligned with the businesses and consumers in the communities that own them.

So, in the next few weeks when you hear opponents of the LUS project criticize it name of protecting 'competition,' point to the long and well-documented history of the incumbents in fighting competition. Then demand that those folks to come up with an honest reason for opposing this project!

UPDATE: Consolidation Accelerates as Time Warner and Comcast Gobble up Adelphia

Cable company Adelphia, the victim of corrupt corporate leadership, is being bought out of bankruptcy by cable giants Time Warner and Comcast. $12 billion would have bought a LOT of network upgrades, particularly when one considers that SBC's fiber to the home investments are going to total $8 billion in the next decade.

12 comments:

GumboFilé said...

honest reasons

http://gumbofile2.blogspot.com/

GumboFilé said...

anger at the incumbents is the worst reason to do this. it's not an honest reason. this doesn't punish them anyway. it will punish us. remember, two wrongs don't make a right.

http://gumbofile2.blogspot.com/

baycock said...

You blast the incumbents for being “Anti-Competitive”. Please show me where LUS has allowed competition in the electricity market. This is a classic example of “the pot calling the kettle black”.

The recent class action lawsuit alleging LUS over-charges may prove that greedy out-of-state companies are not always from out-of-state, they could be our own local governments.

Layne St. Julien said...

baycock, can you explain to me would constitute LUS "allowing competition?" By what mechanism could they possibly prevent competition, if someone else decided to go into the electricity business here? It's my understanding that they have no competition because no one else has stepped forward to enter the market.

Electricity, like water service, is a "natural monopoly." That is, once one company builds the grid to make it happen, no one else will build a side-by-side, competing grid because there's no way they'll make enough money on it. Both entities would have the full expenses of building and maintaining a grid that covers the whole city, but they'd be splitting the market and therefore, the profits. This is the case everywhere, not just here. Can you tell me about ANY place with 2 or more electricity companies that compete for the same customers?

This is the same reason Cox has had a monopoly on cable. And that monopoly would probably stay intact if the technology wasn't moving toward fiber and the need for greater capacity and if Cox was willing to give us those things. Instead, their plan is to keep us on second or third-best options for as long as they can get by with it.

And LUS just happens to have that fiber loop in place . . .

GumboFilé said...

Y'all might want to know that Durel says that this is not competition. One of his campaign planks was that civil government should not compete with existing business. He claims that he has not broken any promises. Therefore this is not competition. So, if what you want is competition, then you're going to have to get it some other way. Durel certainly wouldn't lie or speak duplicitously.

Layne St. Julien said...

I really don't much care what Mayor Durel has said or says now about competition. It's not about him. You say that anger at the incumbents is the worst reason to do this. Might you agree that anger at politicians is a very poor reason NOT to do it?

My own concern with the fiber plan didn't spring, as you suggest, from being angry at incumbent providers. The issue is so much bigger than that! We will diminish ourselves if we allow fleeting irritations to shape our judgments about what would constitute the best possible future for our city and our children.

GumboFilé said...

I'm angry with no one. My opposition to this is consistent with my opposition to tax receivers competing against taxpayers.

I believe that it's immoral for any civil government, with it's territorial monopoly on the "lawful" use of force, to compete against any existing business, which has no such power.

I believe that my position is consistent with Biblical, as well as natural and universal doctrines of justice.

I have plenty of other reasons to oppose this but I believe that this reason alone is sufficient reason to vigorously oppose this.

The proponents' arguments are consistent with entitlements and statist central planning and collectivism.

The core argument in favor of LUS FTTH reveals a sense of entitlement: We are entitled to fiber to every home and/or the jobs it will allegedly produce ("Give me fiber to the home"); If the incumbent broadband providers are unwilling to provide fiber to every home, it is thus acceptable for LCG/LUS to provide fiber to every home, regardless of the true demand or true costs (including an assault on the free market) v benefits.

If this constitutes an acceptable reason for this pet project, then there are no grounds to oppose any pet project of any large or powerful faction.

The balance of the argument is that LCG/LUS can do it better and at a lower price.

I'm sorry but these sound like planks of socialism to me and this is basically all you have.

I suggest that, if you really believe in this, you should write a business plan, form a company, solicit investors and guarantors, and do this as a private venture.

Unwillingness to do so suggests that you don't really believe your own rhetoric.

Inability to do so suggests that your doubts are well-founded.

GumboFilé said...

I might add that, for me to accept your arguments would require me to discard reason (and morality) and take a blind leap of faith.

Layne St. Julien said...

David Hayes,

Not ENTITLED to fiber to the home, but wanting it for the good things it will bring to my community and my family . . . and willing to work to try to get it. What I find most interesting about your position is that you seem to think that if Cox and BS feel it's not yet time for us to have fiber (even though they are in the process of anointing other communities), then we shouldn't have it . . . end of story. We should lie down and be obediently quiet and still. They're not deities, they're not infallible, they're just businesses, and they don't have that kind of power over us . . . or at least not over ALL of us.

And as for your assertion that we are operating without true conviction if we're not going into the fiber business ourselves . . . that's not an honest argument. Have you backed every project you ever supported by going into the business yourself? Was the fact that you didn't evidence that you didn't truly believe that it was a good idea? Is that really the only way you can come up with to honor ideas you believe in?

GumboFilé said...

demanding that the civil government trample on the free market and force others to assume this risk is an indication that you believe you are entitled to this (and to the good things it will bring to your community and your family).

There is free market fiber in Lafayette now and more to come, consistent with true free market demand. Even if that were not the case, I would still assert that the free market is the only way to determine true demand.

Central planning is unable to make this determination. We don't need more fiber than the market demands. Central planning can only distort demand and misallocate resources.

I agree that the free market is not an infallible deity. Rather, it's the civil government that has power over all of us to confiscate and to redistribute wealth. It's the civil government that has become an idol to many.

No, I haven't backed every project I ever supported by going into business myself, nor have I demanded that the civil government force others to do so.

Is that really the only way you can come up with to honor ideas you believe in?

Layne St. Julien said...

David, there is to my way of thinking a whole lot of difference between what I'm doing and what you claim I'm doing. I'm most definitely not demanding that the civil government do anything . . . certainly not that it trample and force. If you knew me, you'd find that notion pretty darned funny.

Entitled to fiber? No, but I will be very glad if we get it. What I DO feel entitled to is the right to try to influence others to vote for the fiber proposal. So I meet people and explain to them what benefits fiber will bring to Lafayette, and I ask them to vote yes in July. I design pamphlets and ask folks to read them and think about what they say. I look for opportunities to talk about the issue. THIS is how I honor the fiber idea.

If Lafayette had waited until the free market with its profit formulas decided to provide electricity, it would have spent many more years in the dark. We don't want to make that mistake with fiber.

GumboFilé said...

There are at least a couple of very significant differences between the situation today and the situation 100 years ago.

One, there were no incumbents providing electricity, therefore no moral problem with a tax receiving entity competing against tax paying entities.

Two, the vote was unanimous, therefore no moral problem with compelling anyone to unwillingly finance the project or assume the risk.

Sorry, no analogy there.

In case you're interested in giving equal time to opposing arguments

www.gumbofile2.blogspot.com

You'll notice I have links to all the pro LUS FTTH sites. I'm not intimidated by opposing arguments.