"Natural Monopoly" Dies

by Don Kimberlin

One of the most propagandized statements the phonecos heap upon your eyes, ears and minds is a claim that "the phone business" is a "natural monopoly." There might have been a ring of reason to it in the context in which Theodore Vail wrote that about 80 years ago (while under the tutelage of the railroad baron, Theodore Vanderbilt). But, technology has made gigantic inroads into the real capital and operating cost of local telecommunications transmission plant. The "natural monopoly" is so dead that anyone who tries to use it on you should be shamed. Here's a paper by Royce J. Holland, president of Metropolitan Fiber Systems, discussing the matter, as published in a newsletter recently sent out by MFS, its "MFS News-Letter" for Winter, 1992:

THE LAST MONOPOLY

"The local loop remains the last domestic bastion of bottleneck facilities and circumscribed competition ..."

"Competition means strife, industrial warfare; ... it often means ... resorting to any means that the conscience of the contestants or the degree of enforcement of the laws will permit."

"This unflattering view of competition was espoused in the early twentieth century by Theodore Vail, the former president of the Bell System. The twin cornerstones of Mr. Vail's philosophy were that telephone service is a "natural monopoly" and that the goals of affordable universal service can only be achieved in a monopoly environment.

"To a proponent of a competitive, market-based economy, the term "natural monopoly" is the ultimate oxymoron. Much like Marxism-Leninism, monopolism results in the stifling of initiative, restriction of technological innovation, development of a stultifying bureaucracy, and general acceptance of mediocrity. Fortunately, many areas of the American telecommunications industry, including equipment manufacturing and long distance services has transformed monopolism to a relic of a bygone era. Competition in these industries has resulted in technological innovation, dramatic improvements in customer service, robust increases in demand, and significant reductions in costs.

"Affordable universal telephone service is a laudable goal that has been a major tenet of domestic telecommunications policy ove the last half century. MFS heartily endorses the goal of affordable universal service and believes that a competitive environment in the local loop will strengthen this national committment. As we have proposed in two pending FCC rulemaking proceedings, non-dsicriminatory contributions by all competitors to promote universal service will produce significant benefits for consumers and the US economy.

"The last two decades have seen the death of monopolism in many areas of telecommunications. In fact, the local loop remains the last domestic bastion of bottleneck facilities and circumscribed competition. Despite the exaggerated outcries of `billions lost to bypass,' by the Baby Bells, the local exchange carriers still control over 99 percent of the local access market. And the Regional Bell Operating Companies (RBOCs) in particular use these outrageous fabrications to try to justify the removal of the Modification of Final Judgment restrictions on their lines of business and to gain further deregulation.

"Even in this last monopoly market, the benefits of very limited competition are very apparent. The RBOCs are beginning to improve customer service and network reliability, at least in the cities where limited access competition exists. And our new product offering for interconnecting high speed computer networks will undoubtedly spur the Bells to accelerate the development of similar products. It is particularly ironic that MFS is leading the way in commercializing the technology for America's Information Superhighways of the Future while the RBOCs continue to focus on non-regulated overseas markets." (Alluding to the millions the RBOCs have invested in phone companies, cable TV and transoceanic submarine telephone cables instead of their local business.) "Once again, consumers have benefitted from a competitive rather than a monopoly environment.

"Although competition has gained a small beachhead, to paraphrase Mark Twain, the reports of monopolism's death are greatly exaggerated. The lack of true competition has sparked legislative and regulatory initiatives such as the Cooper Bill in Congress and Chairman Barnich's Telecommunications Free Trade Zone Proposal at the Illinois Commerce Commission to remove regulatory barriers to entry in the local exchange market. As our Local Equal Access Initiative and other pro-competitive proposals are implemented, and competitors to the Baby Bells continue to set the standards for customer service and technological innovation, Theodore Vail's horse-and-buggy era philosophy may ultimately be consigned to the dustbin of history."

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And, one more case, as Paul Harvey puts it, of, "Now You Know the Rest of the Story." Remember it when the monks of your phoneco start chanting the mantras of the obsolete Bell System again!