AT&T+Southwest Bell=Nothing to be concerned about
Warning: This post may not be appropriate for all audiences. No, there is nothing titillating, pornographic, or violent in the following. Instead, it may be considered boring by those who are uneducated, lack economic literacy, or have their ideological blinders on.
Recently, I heard on the news that AT&T and SW Bell are merging. There are fears amongst regulators and other groups that it will increase the price of cell phone service. There is a fear there is an attempt to re-create the old Ma Bell, and it will soon abuse it's "monopoly power."
Nonsense, I say.
There is nothing to fear here. Things have changed quite a bit since those days. Before I explain however, I will briefly go into a bit of economic theory.
According to economic theory, a corporation has "monopoly power" when it had complete control of a product for which there are no close substitutes. So it can increase the price of the product at will. Of course, that is the simplified version of monopoly theory, and I am not going to spend my time here going over all those other details.
At one time, AT&T controlled pretty much all phone service. And, nominal phone prices were just about the same as they were today. I saw a phone bill from the 1970's, without long distance charges, and saw this was the case.
So, phone service was much more expensive then than today. But wait - you think - you said it was slightly cheaper then. If this is the way you think, review the warning at the top of the article! In any case, to return to my post, there are several reasons for it. There could have been some monopoly power in the pricing. The technologies were not as advanced. There may have been some other reasons. While I do not have a study at my fingertips as to why phone services is cheaper today, it is obvious that monopoly power did have a role to play. For example, even with technology, since AT&T had no competition, it could take it's own sweet time when converting it's switching from the old operator technology to electronic switching. IN fact, it started this project in the 1930's, and did not conclude until the 1970's! This undoubtly had some reason for higher prices.
However, in 1984 (I think) the federal government ordered AT&T to have a breakup. That meant that AT&T could no longer dictate inane rules like no devices on it's phones (like dialup or answering machines) and had to face lower pricing. So now, people could buy cool phones, cordless phones (before the breakup, one had to rent a phone), could attach answering machines to their phone, and use dialup technology. Things were good.
So, if AT&T gets it's monopoly back, does that mean that we will have to go back to the way things were before the government broke up it's monopoly?
NO!!!!!
You see, things have changed a little bit since 1984. In fact, telecommunications technology has advanced quite a bit since then. And, many of those technologies are increasingly obsolete. In fact, many people under the age of 30 would find that paragraph two paragraphs ago somewhat odd. Instead, they use cell phones as their primary line and a service like Vonage as their secondary line. They do not use dialup, but instead have DSL (at a minimum), cable, or wireless technology, for their internet. Isn't dialup what their grandparents use? And in fact, many do not have a "phone" but instead use devices like a blackberry.
There are several cell phone companies out there today. The costs of scale may allow for there to be several. If they ever got so huge that only a few companies would be able to function, technology is moving so far forward that within a few years, new substitutes would challenge the old.
One thing that people seem to forget about anti-trust theory is that if a monopoly raises it's price too much, new technologies come into play that are the functional equilivent of that which a company has a monopoly over, and soon, that monopoly has to cut prices or go out of business itself.
Also, sometimes, products consume such a small proportion of a person's budget, that there is no social loss if a company has a monopoly over a product. I will give three examples.
First, imagine if all sod companies throughout the country merged and formed "Sodco". It gets to sell sod at whatever price it wants. Is there a loss of social benefit from Sodco gouging it's customers? No. First, people only buy sod, at most, twice during their lives. It consumes an insignificant part of their lifetime budget. Secondly, they can always seed their property with grass seed, hydroseed it, or plant bedding plants, if sod is too expensive. So for some products, the abuse of monopoly theory is actually quite irrelevant, even if people need that product.
Now, lets imagine there is only one typewriter manufacturer. Not a keyboard manufacturer, a typewriter manufacturer. And, they decide to gouge customers. Is there any loss of social benefits from this situation? No, not here either. Because almost everyone who sends correspondence today without hand writing it uses a computer. And paper is skipped altogether. In fact, if you want a typewriter, the best place to buy one is from an antique store. I am not sure if it is even profitable to make a typewriter anymore. Thus, a monopoly over typewriter manufacturing has no loss because it is socially irrelevant.
Now, take trains. At one time, they were the height of technology. And they merged, thus able to exercize monopoly power. But they were regulated quite heavily. Would there be any loss of social benefit if the regulators went away? No! Today, good are transported in several ways. One of which is railroads (and it is still relevant, as I see locomotives haul at least 100 cars at a time). And in terms of people, it is irrelevant - which is why Amtrack must continually be bouyed up. Every time I see an Amtrack train come by, it usually has six cars attached - as opposed to 100 for freight trains (maybe a good way to see the country, though). Even with freight trains, there is lots of competion from trucks, ships, planes, and now, even via computers (when was the last time you bought software from a computer store?). So railroads, while still relevant, have enough competition to keep from exercizing any monopoly power.
And, like to prior two examples, land line technologies are becoming increasingly obsolete. Instead, phone companies are beginning to offer communications packages that affect not only the phone, but the internet, the cell phone, and even the company who delivers the television channels to your home. Even they see the day is coming when land line technology will be obsolete.
However, the federal regulators may not see it this way. Instead, rather than understand that anti-trust regulation is best applied to relevant technologies that consume a goodly share of a person's budget, they instead see an attempt at a monopoly, and no matter how obsolete the monopoly, they are so focused on the fear of monopoly power, they must do everything in their power to stop it. In the meantime, they allow a monopoly (and an organization engaged in racketering) like the NFL to continue such that they may try to stack the deck against consumers.
Too much has changed since 1984 to have any real abuse in a new AT&T monopoly, which would be over land lines. The regulators should let this merger pass, as there will not be much adverse affect to consumers.
Recently, I heard on the news that AT&T and SW Bell are merging. There are fears amongst regulators and other groups that it will increase the price of cell phone service. There is a fear there is an attempt to re-create the old Ma Bell, and it will soon abuse it's "monopoly power."
Nonsense, I say.
There is nothing to fear here. Things have changed quite a bit since those days. Before I explain however, I will briefly go into a bit of economic theory.
According to economic theory, a corporation has "monopoly power" when it had complete control of a product for which there are no close substitutes. So it can increase the price of the product at will. Of course, that is the simplified version of monopoly theory, and I am not going to spend my time here going over all those other details.
At one time, AT&T controlled pretty much all phone service. And, nominal phone prices were just about the same as they were today. I saw a phone bill from the 1970's, without long distance charges, and saw this was the case.
So, phone service was much more expensive then than today. But wait - you think - you said it was slightly cheaper then. If this is the way you think, review the warning at the top of the article! In any case, to return to my post, there are several reasons for it. There could have been some monopoly power in the pricing. The technologies were not as advanced. There may have been some other reasons. While I do not have a study at my fingertips as to why phone services is cheaper today, it is obvious that monopoly power did have a role to play. For example, even with technology, since AT&T had no competition, it could take it's own sweet time when converting it's switching from the old operator technology to electronic switching. IN fact, it started this project in the 1930's, and did not conclude until the 1970's! This undoubtly had some reason for higher prices.
However, in 1984 (I think) the federal government ordered AT&T to have a breakup. That meant that AT&T could no longer dictate inane rules like no devices on it's phones (like dialup or answering machines) and had to face lower pricing. So now, people could buy cool phones, cordless phones (before the breakup, one had to rent a phone), could attach answering machines to their phone, and use dialup technology. Things were good.
So, if AT&T gets it's monopoly back, does that mean that we will have to go back to the way things were before the government broke up it's monopoly?
NO!!!!!
You see, things have changed a little bit since 1984. In fact, telecommunications technology has advanced quite a bit since then. And, many of those technologies are increasingly obsolete. In fact, many people under the age of 30 would find that paragraph two paragraphs ago somewhat odd. Instead, they use cell phones as their primary line and a service like Vonage as their secondary line. They do not use dialup, but instead have DSL (at a minimum), cable, or wireless technology, for their internet. Isn't dialup what their grandparents use? And in fact, many do not have a "phone" but instead use devices like a blackberry.
There are several cell phone companies out there today. The costs of scale may allow for there to be several. If they ever got so huge that only a few companies would be able to function, technology is moving so far forward that within a few years, new substitutes would challenge the old.
One thing that people seem to forget about anti-trust theory is that if a monopoly raises it's price too much, new technologies come into play that are the functional equilivent of that which a company has a monopoly over, and soon, that monopoly has to cut prices or go out of business itself.
Also, sometimes, products consume such a small proportion of a person's budget, that there is no social loss if a company has a monopoly over a product. I will give three examples.
First, imagine if all sod companies throughout the country merged and formed "Sodco". It gets to sell sod at whatever price it wants. Is there a loss of social benefit from Sodco gouging it's customers? No. First, people only buy sod, at most, twice during their lives. It consumes an insignificant part of their lifetime budget. Secondly, they can always seed their property with grass seed, hydroseed it, or plant bedding plants, if sod is too expensive. So for some products, the abuse of monopoly theory is actually quite irrelevant, even if people need that product.
Now, lets imagine there is only one typewriter manufacturer. Not a keyboard manufacturer, a typewriter manufacturer. And, they decide to gouge customers. Is there any loss of social benefits from this situation? No, not here either. Because almost everyone who sends correspondence today without hand writing it uses a computer. And paper is skipped altogether. In fact, if you want a typewriter, the best place to buy one is from an antique store. I am not sure if it is even profitable to make a typewriter anymore. Thus, a monopoly over typewriter manufacturing has no loss because it is socially irrelevant.
Now, take trains. At one time, they were the height of technology. And they merged, thus able to exercize monopoly power. But they were regulated quite heavily. Would there be any loss of social benefit if the regulators went away? No! Today, good are transported in several ways. One of which is railroads (and it is still relevant, as I see locomotives haul at least 100 cars at a time). And in terms of people, it is irrelevant - which is why Amtrack must continually be bouyed up. Every time I see an Amtrack train come by, it usually has six cars attached - as opposed to 100 for freight trains (maybe a good way to see the country, though). Even with freight trains, there is lots of competion from trucks, ships, planes, and now, even via computers (when was the last time you bought software from a computer store?). So railroads, while still relevant, have enough competition to keep from exercizing any monopoly power.
And, like to prior two examples, land line technologies are becoming increasingly obsolete. Instead, phone companies are beginning to offer communications packages that affect not only the phone, but the internet, the cell phone, and even the company who delivers the television channels to your home. Even they see the day is coming when land line technology will be obsolete.
However, the federal regulators may not see it this way. Instead, rather than understand that anti-trust regulation is best applied to relevant technologies that consume a goodly share of a person's budget, they instead see an attempt at a monopoly, and no matter how obsolete the monopoly, they are so focused on the fear of monopoly power, they must do everything in their power to stop it. In the meantime, they allow a monopoly (and an organization engaged in racketering) like the NFL to continue such that they may try to stack the deck against consumers.
Too much has changed since 1984 to have any real abuse in a new AT&T monopoly, which would be over land lines. The regulators should let this merger pass, as there will not be much adverse affect to consumers.
posted by EricMatthew at 9:44 PM
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