Monday, March 19, 2007

On Last Mile Monopolies

A blip in Gerald Shields "Washington Watch" in the Advocate Monday morning sent me hunting back through my archives. Et Voila! I found the story behind the story and it is all about last mile monopolies--not the cyber age version this time, but the classic industrial age one involving railroads and echoes of the Robber Barons. Lafayette has decided on its own fiber-optic solution to the cyber age problem of the last mile and is, by a strange twist of fate, also a player in the current railroad version.

The Story: All this comes up now because Shields reports the unusual story of David Vitter, a conservative republican, co-sponsoring a bill with such folks as Russ Feingold that would rein in a monopoly corporation. The bill targets railroads and would remove some of their anti-trust exemptions, opening them to civil suit and standard anti-trust controls at the federal and state levels. What catches the eye of a Lafayette denizen is Vitter's comment:

Lafayette electric customers pay $5 million to $6 million more a year, Vitter said, because there is only one 19-mile rail line into the city for coal.

“That absolutely and directly produces $5 million to $6 million more annually in rates for the city of Lafayette, and that’s wrong,” Vitter said.

Indeed, that is wrong.

The blip's version of the story correctly identifies Lafayette and the cost to its citizens but misidentifies the locale: the problem actually occurs at the Rodemacher coal-fired generating plant near Alexandria (half owned by LUS) and the 19 mile spur that connects the plant to the major rail trunk. That 19 mile spur is owned by Union Pacific who has used its control of the last few miles of a 1500 mile journey from the Powder River Basin coal mining area in Wyoming to jack up prices about 50% over the price per mile where competition exists end to end. That adds up to an additional 5-6 million a year in unfair costs paid by LUS customers. (That is only part of the cost to Louisiana citizens--CLECO owns 30% of that plant and other LEPA public electric utilities own the rest...CLECO also owns 100% of another another unit of similar capacity at Rodemacher. My rough estimate of the electrical cost to the citizens of the state of monopoly control of this short spur: 20-24 million dollars. A year.)

The outline for both cyber and industrial last-mile monopolies are surprisingly similar. Both involve an effective monopoly on service based on the ownership of the "last mile" that connects the user to the larger transportation network. That allows the the owner to charge what economists call "monopoly rents" and what the rest of us call "absurd overcharges" and "greed." In the case of coal that's a 50% overcharge. Having a (rare) second cable company in an area lowers prices by an average of 17%. (Close to the 20% break LUS has projected--which would seem to demonstrate that they are just jumping to competitive pricing.) Collusion between supposedly competitive is also a common feature of such area-based monopolies. They do not "poach" on each other's footprints. Huval has complained in testimony before Congress that this is true of railroads and anyone who has pondered why Comcast--which is a much larger company--doesn't move down from Opelousas and invade Lafayette has come to the conclusion that cable companies don't poach either. The same, of course, is true of telephone companies regardless off vain hopes the FCC has exhibited for years. Why not? Because poaching would be too much like competition--and would cut into their monopoly profits. Both companies make more money by respecting each other.

So there's a pattern here with which Lafayette, and certainly that LUS, is familiar. Over the years Louisana's legislators have made several attempts to fix this in Congress--to no avail. The coalition looks broader this year; so perhaps honor and good sense will prevail. In any case, LUS has prior experience with the evils of last mile monopolies and that might well have made the cancer easier to recognize when they considered taking up the challenge to provide a little last mile competition for Lafayette's cable, phone, and internet services.

We tend to think our fiber fight is a fresh new battle but in some ways it is a very old story; old wine in new bottles.


Lagniappe: To continue my new-found fascination with what we can glean about social issues from what we Google up: The classic USAToday article "Bells dig in to dominate high-speed Internet realm" that thrust Lafayette into the national discourse came up on the first page when I googled "robber barons railroad." I smiled and went hunting for the reference, thinking I'd forgotten that it had been mentioned then. But, in fact, not one of those words is in the story. A little further rooting around reveals that: "These terms only appear in links pointing to this page: robber barons railroad" Hmmn...what should it tell the incumbents that the story of their treatment of municpalities is so widely understood as wrong that historical references to abuses almost a century and a half old are now linked to their name? Clueless.

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