99Percent

Bill: But don't you think this pole space problem is more of a problem for a city level government? Anyway I wasn't refering to this type of regulation. Obviously if there is only one utility, there is no need to regulate pole space. The regulations we are talking about pertains to regulating prices, quality and levels of service, because these are mostly self regulated when there is competition, but in the absence of such competition a priviledge granted by the governemnt, the government itself must oversee these, or else the monopoly will eventually abuse its priviledged position. This is the type of regulation we are discussing.Not true, I have been thinking deeply in the subject because it is one of the weak points of libertarianism. I am also an experienced businessman, holding a semimonopoly myself (virtually the only comic book retailer in Mexico).well, it was mostly a bad business decision, nothing to do with the supposed "natural" of monopoly in place, IMO. That start up company did not fully realize before hand the costs and possible profits of entering the market. However, it might have been more profitable if the current monopoly had been charging excessive prices for a long time, or if you could have found a more efficient way to lay down the fiber optic cable. The point is, is that by declaring beforehand that such an such types of utilities are natural monopolies, and officially grant exclusivity, you then put barriers of entry for possible innovative ways to compete.But that might be because in markets where cable services are provided, the cable companies are forced to charge a reasonable price, or else residents can switch to dishes. That would not be the case if say the government declared television service a "natural" monopoly with no posibility of others offering alternative services, like satelite dishes, or whatver new technology might ariseI am not an electronics expert but I believe you can't efficiently broadcast RF frequencies from space.But that is a limitation of current technology. Who is to say that in the near future, dish networks can't provide local news to smaller and smaller cities and communities. As of lately, Direct TV is already providing local channels to major metropolitan areas and continues to expand this coverage AFAIK.

So, the satellite dishes aren't really competing quite directly with the cable TV companies. The dishes have more channels, but they are not locally customizable; they are "one size fits all" for the nation as a whole. They fit the needs of some segment of the market, but can't directly compete with the local cable TV.It is curious to see how you complain that you were unable to enter the cable tv market because you think it is a natural monopoly, without realizing that precisely it is the regulations in effect that disallowed it. The government through its regulations force the cable company to operate at razor thin margins to supposedly protect the consumers, but it precisely this artificial low price that disallowed your startup company any chances of being able to enter and compete!Wrong, because its a regulation at the community level. Charging a high rent for pole space benefits the community directly, the same community that is going to use the utility. Note however that we are talking about fixed costs. Different consumers within the community might use the utility at different levels of consumption which would regulate prices at the variable cost level.You are not being imaginative. People don't want wires, they want electricity. There are many ways to produce electricity, from home generators, to solar panels. All these compete directly with electric power supplied by power companies.Again, we are talking about television service, not wires running into houses. As discussed before, satelite dishes, broadband internet and even other forms of entertainment compete directly with cable TV. You can get local news in many other ways than cable TV for example.You certainly seem to be fixed on this wire only mentality. What does a phone company really provide? Its not wires running to your home, but voice communication. You can communicate in many ways, likr using cell phones, broadband internet, etc.Certainly important utilities like water, electricity, etc and like you say mail is more expensive to provide in rural remote communities than in big cities. But that also applies to any good and services produced, why pick and choose particular types of services like utilities? Getting food is also harder when you live far away, or even a good neurosurgeon. Why the bias for particular markets? Its one of the things you sacrifice when you want to live peacefully far away from the big metropolis where everything is super connected and you can find anything quickly and efficiently.Curiosly I say the same but in the opposite context. Those who espouse the idea of natural monopolies demand governmental interference, lest such supposed natural monopolies become abusive.You say this because you lack imagination of possible new technologies. You are in effect giving up to the status quo of current technology. Progress and human ingenuity has been pervasive in history and undeniable.Sure you can force prices to be barely minimal in any market, not just natural monopolies, but by denying the possibility of extra profits, you deny the possibility of innovation and progress.

The moment you declare such a market a natural monopoly you are fixing it to the current status quo, denying any more progress. Your experience with the optic cable start up should have taught you that lesson. Instead you derived the wrong conclusions, forgetting the fact that technologically optic cable is indeed better than regular coax cable, so why wasn't the technological progress achieved?

Bill

Yes it is. Most of these "natural monopoly" situations arise at the city level (local utility delivery is generally viewed as a city matter). So? Well, there is if you don't want the electric utility, telephone utility, cable TV utility, etc. each putting up their own set of poles! In Iowa, the electric utility put up most of the poles first, and the public utility commission mandated that subsequent positions on the same poles could be rented for a nominal monthly fee ($5 to $25 per pole per month, depending upon how old the pole was).

The city doesn't want to generate "urban sprawl" full of poles, so they, once again, mandate a "natural monopoly" by the company who first puts up the poles for any given route. Its just a special case of the whole "natural monopoly" discussion, this time at the "wholesale" level. Perhaps, then, you didn't understand that this is exactly what regulating pole space comes down to? The government is specifying waht the "prices, quality, and levels of service" are for public utilities who tack cables to some other utility's poles. The government gets into this because these utilities have the bad habit of "not playing nice" with other utilities. But that doesn't sound like its a "natural monopoly." More a question of licensing, which is controlled by private companies rather than governments, which isn't the same thing (at least, it isn't within libertarian philosophy; I frankly don't see much of a distinction; I mean, what difference does it make if the government is issuing a license to run a monopoly or a private company is issuing a license to run a monopoly?). No, the failure had nothing to do with the monopoly. In fact, the failure had everything to do with the impression going in that the monopoly wan't being run efficiently, and that there was thus room to compete. There wasn't because the "natural monopoly" really was a "natural monopoly" and there was no room for a competitor.

Also, there were no barriers to entry for innovative technology. In fact, that was why we were able to get in and compete: we were using innovative technology that was not barred by the existing franchise.

Remember, that the city government (it usually is the city, but it could also be the county or state) is usually motivated by wishing to achieve the best overall results for its citizens. There are considerations of appearance (no "rats nests" of cables, etc.) and of costs to the consumers, but (unless somebody is getting "paid off" in some way) there is almost never any real objection to the use of innovative technology. You are really missing the point I was making here: satellite TV isn't directly competitive to cable TV because only cable TV offers most local TV stations (the two largest satellite providers have local stations offered in a few of the biggest markets; but not in even anywhere close to the the majority of markets that they serve).

It has really worked somewhat the other way around. The local regulation of rates, etc. by local governments across the nation has kept cable TV rates down, so that, in turn, has kept the rates of satellite TV providers down because they are the ones who are trying to use innovative technology to try to "break into" the "natural monopoly" of the cable TV franchises.

You seem to be asserting that, because the satellite providers aren't prohibited from competing with the cable TV outfits that a "natural monopoly" doesn't really exist. That isn't true because there is one (and usually only one) franchise given out for the provision of cable TV services in any given city (or other similar area). You really aren't an electronics expert! Yes, you can efficiently broadcast RF frequencies from space.

There is a band of frequencies that are useful for geosynchronous satellite broadcasts. (Actually, there are several bands; but that is a matter of splitting things up for the purposes of regulation). The spectrum which is useful for this purpose is generally between 800 MHz and about 30 GHz. The higher the frequency the better, for efficiency's sake; up to a point, anyway. But the higher frequencies require more-expensive componants, so there is always a cost-benefit ratio at work in space systems designs. That is why the original TV satellites were designed for C-band (around 6 GHz). The second batch of TV satellites used Ku-band (around 10 GHz). I don't know what frequency the new digital radios operate on, but I wouldn't be at all surprised if it was higher still.

I also forget, off the top of my head, but you can't go up in frequency forever. There is an upper limit where, even if you are broadcasting from a satellite directly at the ground, the signals begin to bounce off the Ionosphere and ricochet back into space instead of penetrating to the Earth. My point here is that there is a finite and limited amount of useful RF spectrum. The allocation of that RF spectrum for various technological needs or uses is up to various national and international organizations, like our Federal Communications Commission (another "natural monopoly" that is being regulated by the government). Both DirecTV and Dish Networks are actually required to offer local TV channels in certain types of markets. Our government at work again.

The number of channels that can be offered is a question of several factors, including:

• The number of satellites that can be placed into orbit (the "slots" for these satellites are, yet again, allocated by the government because there are so few "slots" that they, too, constitute a "natural monopoly" of a sort)
• The number of transponders on each satellite (generally standardized at 32 for a Ku-band satellite, although fewer transponders can be populated for any given satellite if the customer wishes to avoid the extra cost for transponders that will never be used)
• The number of broadcast signals that can be transmitted on any given transponder, which is a funtion of the compression that can be applied to the video signals, the "action level" of each video signal, because higher action levels require more bits to encode the movements on the screen, and several other technical factors, etc.). The usual range for compression is from 5 "broadcast quality" signals (with "full action") up to about ten "broadcast quality" signals (useful only for "talking heads" channels). A typical average for any given system is around 8, although technology advances can make improvements in that ratio, up to a point.

The last I heard, Dish Network was going to be forced to live with four "slots" while DirecTV was going to have three "slots." If each of them puts up a full range of transponders on each satellite, then with an average of ten channels per transponder (based upon FUTURE technology), the maximum possible capacity for each system would be 960 channels for DirectTV and 1280 channels for Dish Network. To go any further would require a total redesign of the system, which isn't going to happen any time soon (too many "sunk dollars" in making the current system work).

But any given consumer receiver can receive at most two of the satellites, or 640 channels. However, by carefully allocating which channels go onto which satellites, it is possible for the satellite vendor to eventually be able to tackle most of the larger markets. At least, this is true until you get to issues like HDTV and a plethora of movie channels.

When HTDV is finally mandated to go into effect, sometime in the next five years, the number of available channels on these satellite systems will be dramatically reduced. HDTV takes roughly three times the bits of standard TV, so you would be looking at one-third of the current available channel capacity.

So, technology isn't always a boon to these situations. Double-edged swords abound! I really don't understand your point here. Are you saying that if the government had let the cable company rip off the consumers for whatever they could have gotten due to their monopoly position, then there would have been enough room for a smaller and less-efficient competitor to enter the market and the market would have found a new level at a lower price that was still higher than the regulated monopoly price, and that this would somehow be better overall? This doesn't make any sense to me.

I think that the whole point of defining a "natural monopoly" is such that when you allow competition in this situation, the inefficiencies of competition end up making it more expensive for both competitors. That is certainly the case in the cable TV market, as I am personally painfully aware (I spent hours with the Excel models, trying to get around that very point).

I think that we have a very-basic disagreement here as to who is supposed to reap the benefits of a market: the consumers or the sellers. You seem to wish to allow inefficient competitive situations to exist for the profit benefit of the "market leader" and at the expense of the consumers. That is a political philosophy that will not be popular so long as people understand exactly what it is that you are peddling.

In my view, the consumers are the voters, and the job of government is to see to it that these consumers/voters get the best deal possible. When a competitive market produces the best deal possible, then that is what governments ought to encourage. But when a "natural monopoly" exists, then that is what the government ought to encourage, with governmental regulation, so as to get the consumers the best deal possible.

I think that this same basic disagreement exists with respect to your suggestion that the community regulate "pole space" by charging high costs for the right to use public right-of-way for the purposes of reaching consumers over the "last mile." I had said about your suggestion that cities charge these high costs: You then replied: In my view, this just amounts to an indirect tax upon the consumers. The government sets an artificially high price in order to control capacity. The utility that chooses to do business under those circumstances must then necessarily pass on those artificially high costs, plus a mark-up, to the consumers that the utility serves. The consumer is thus funding these artificially high costs. This benefits the government because the government gets the extra revenue, but it isn't a benefit to the consumer or to the utility. In both cases, its just an artificial price increase. Yes, they compete, but none of them are (yet) economically viable.

First, we need to address the issue of power standardization. In the United States, everything runs off of 60-cycle power at roughly 110-120 VAC. Many of the allegedly-competitive technologies have difficulty producing that sort of standardized power.

There are also issues of efficiency: home generators aren't anywhere near as efficient as the generators at major power plants. So, yes, I can use a home generator, but it is going to cost me more for the power which I obtain from that source than it will from the public utility.

People do so want wires because they know that is the way in which they obtain standardized electricity delivery at the lowest available cost. I expect that this situation can change in a decade or three. But it won't change very quickly because of the very issues that we've been discussing in this thread: standardized power distribution and low costs due to an entrenched regulated "natural monopoly." True, but those "other ways" only serve as an additional control on what the regulated monopoly can charge for its services.

And again, I should point out that, while there are some overlaps in market, one medium doesn't necessarily compete directly with another. Satellite TV doesn't really compete directly with cable TV because their channel line-ups are really dramatically different (although this seems to be changing with the advent of digital cable TV boxes). You only have direct competition when you have virtually the same TV line-ups on each of the allegedly competing media. The more differences that there are between the two service offerings, the less direct is the competition.

This is why those "other ways" aren't really competitive with cable TV. I can't watch Friends in my local newspaper. I can only read an article, review, or program listing about it, but I can't watch it!

Television news hasn't killed off newspapers for exactly that reason: they aren't directly competitive with each other. And the Internet hasn't killed off any alternative media yet (its still too primitive, from a technology standpoint). When a 3 Mbps video feed becomes realistic over my Internet connection, then the Internet might become competitive with an "on demand" cable or over-the-air (broadcast) technology. But we aren't there, yet.

Until there is true competition, the government does a good thing by regulating any and all "natural monopolies," at least on the community level. Underground pipes are the only practical way to deliver water and sewer service. Copper wires are the only practical way to deliver electricity service (people really don't wish to run their own generating stations; outside generating capacity requires copper wire delivery, even if we go to neighborhood power plants instead of large regional utilities).

Cell phones only recently became competitive with local telephone service, and if you look closely, the bit Regional Bell Operating Companies and the major long distance companies own the bulk of the bigger cell phone companies (SBC has Cingular; Verizon has its wireless arm; Sprint has PCS, etc.). So, yes, cell phones are now competing somewhat with local telephone service; but not yet entirely. Modem speeds on cell phones are still problematic, and still involve surcharges. There are still barriers to total competition. In other words, cell phones aren't ready to entirely subsume the local telepone market.

And furthermore, cell phones themselves are still largely regulated. You don't have just one cell phone company in any given area, but you are generally limited to two to four of them (this is technology dependant, too; multiple technologies can add to the number of cell phone licenses for any given geographical region).

Broadband Internet is an interesting technology that is "up and coming." But it still doesn't really compete in most areas. And in fact, it is most useful in rural areas where "line of sight" communication isn't such an issue. In urban areas, the "line of sight" problem can get to be a real headache.

Frankly, new technologies seem to compete for, and address, market niches; frequently under-served market niches, at that. Unless there is a total equivalence of product offerings, you don't have direct competition. And in most cases, direct competition is lacking. I thought the issue was whether or not governments ought to continue licensing "natural monopolies" to operate as public utilities. I'm asserting that governments ought to continue to do that.

"Why pick and choose particular types of services like utilities?" Because those are the services which must be delivered to the home or else they use their usefulness. It does me no good if I have to walk three miles to a neighbor's house to pick up my phone. It isn't really "my phone" unless it is in "my house." You don't say the same things about supermarkets or neurosurgeons.

Public utilities are defined by those services which people demand to have delivered to them without regard to where they choose to make their home. Rural electrification was a big issue here in the United States back in the 1930s. The government decided to sponsor rural electrification and a huge industry was born. Electricity can yield well water, and septic systems are rational to use in rural areas, but without electricity, much of our modern standard of living is unavailable to us. Telephone service is also deemed to be virtually essential to a modern lifestyle.

When people choose to live in communities, even if they are small communities of a few hundred people, there will almost always be a demand for water and sewer services to be added to electric and telephone services. Gas service is an optional extra, but where it is supplied though underground pipes, it is generally supplied by a public utility.

I guess I really fail to understand the points of your objections to this well-entrenched phenomena. Oh, I surely agree with you here!

That is the point of a "natural monopoly." If a "natural monopoly" exists, then it can't be effectively competed with, and governmental regulation is the only way to keep the costs to the consumers down to a reasonable level. Otherwise, the natural greed that we are all infested with will end up raising prices to the point where a low-efficiency competitor would be prompted to enter the market, and at that point, everybody loses. My point would be that, until this currently-inconceivable new technology presents itself for deployment, then we clearly have a "natural monopoly" which cannot be competed with in this sort of a situation. You can't convince me that it would be a good idea to alter the current state of affairs based upon the promise of new technology decades or centuries into the future! No, it isn't a denial at all.

All "natural monopolies" involve negotiations between the monopolist and the government (who is acting on behalf of the best interests of the consumers). If the monopolist wishes to have the consumers pay for "innovation and progress," they will generally follow a procedure of applying to the government to create the revenue stream necessary for funding the desired "innovation and progress." Such things are done more carefully and deliberately than they would be done by a private business entity, but they aren't in any way denied. Because the tecnology in question was transparent to the market. In other words, nothing prevents a cable TV company from swapping to fiber optic cable. And many have done so in order to gain a capacity upgrade to their system.

My company failed because it was only economically viable to install in a "green field" (new community) environment where we would become the "natural monopoly." It could not compete as the second vendor in town, where we had to invest in the same amount of cable to serve 100 customers as we needed to serve 10,000 customers. The economies of scale were not there for an "overbuild" situation (the word "overbuild" is used when one cable TV provider comes in and "overbuilds" an existing provider's network in an attempt to compete).

There have been some big-name economic studies done on cable television "overbuilds" and they are just not economically feasible because of the situation I've been discussing herein. The required investment is too high to have the "overbuild" company make any money competing with a "thin margin" regulated monopoly. Those are the facts of life, and unfortunately the managers of the company I worked for shredded several million dollars before they realized that they were caught in that same trap. That's life when you venture your capital.....

== Bill

emphryio

You say this because you lack imagination of possible new technologies. You are in effect giving up to the status quo of current technology. Progress and human ingenuity has been pervasive in history and undeniable.

I recently met a libertarian with this same idea that new technology would make libertarian positions actually make sense.

But I haven't met too many liberals/socialists who say this because it seems they don't have to get so imaginative to see how their positions make sense.