From: summer@mullian.ee.mu.OZ.AU (Mark Summerfield)
Subject: Re: Cream skimming considered beneficial
Organization: Computer Science, University of Melbourne, Australia
Distribution: aus
Date: Thu, 17 Dec 1992 22:11:19 GMT

This was a fascinating reply, because I found that on most points
Chris and I actually *agree*!  Sounds strange?  Let's see if I can explain...

chris@suite.sw.oz.au (Chris Maltby) writes:

>I won't disagree with the idea of a natural monopoly on connections to the
>network, and for the same reason why no-one proposes competition in the
>supply of sewage connections. That doesn't mean that there is a natural
>monopoly on anything other than the link between my house and the exchange.

Agreed!  I believe, however, that this extends beyond the exchange.  The 
exchanges themselves, and the network which connects them should also be
included.  I have not argued at any point that telecommunications *services*,
particularly value-added services, should be subject to monopoly.  You
should be able to buy your 'phone from anyone you like; likewise a voice-
mail service, a PABX service etc.  I can see the problem with this --
in order for it to be possible for companies other than Telecom to
provide these services, the network and its exchanges have to have the
right capabilities, and Telecom has to be co-operative.  I can't see
why this shouldn't be the case though -- Telecom has always been technology
driven (too much so in some people's opinion), and all those new service
providers would be Telecom's *customers* (= income).

The fact remains that Optus is more than this.  Optus is a network provider,
too.  Optus are duplicating the infrastructure upon which a natural
monopoly operates.  This has happened for *political* reasons.  I don't
believe the government (which is full of people who know f--- all about
operating a communications network) was capable of distinguishing
between network infrastructure and services, let alone formulating a
policy which recognised the distinction.

>Note that this actually increases the size of the telecommunications pie.
>Why does Telecom assume it will lose business from competition? If the
>market gets bigger because the services are more attractive then everyone
>wins, no? 

That's the point I was making above when I said Value Added Service Providers
= Telecom Customers = income.

> BTW, this seems to be what's going on at present in the Mobile
>market.

I was thinking about this the other day.  I'm not sure whether I see mobile
as a value added service or as extended network infrastructure.  It's certainly
possible to see those towers with the feathers on them as a kind of terminal
equipment connected to the physical network infrastructure.  On the other
hand, the radio bandwidth they use is a limited resource, and can be
dimensioned in the same way as a "physical" network can.  Also, there
is obviously a strong argument for the reform of a service which is so
closely related to the operation of small and large business in Australia.
Mobile is probably an area which can benefit from competition.  Remember,
though, that Telecom *created* this market in Australia, and that as a result
we are the third highest per capita users of mobile phones in the world!

Do you suppose the government considered *all* these issues, or do you think
they were too busy counting their multi-million dollar license chickens
before they had hatched?

>I hear what you're saying. I think you are leaving out the magic bit about
>customer choice. None of the above obligates the monopoly to find out what
>its customers want so that it can protect its market share. If you can
>work out how to do this in a monopoly arrangement the country has a very
>important job for you. Hint: the answer is not "a committee".

I concede that this is a problem.  I am willing to accept that, given human
nature, competition is the only *practical* way to achieve this.  I still
believe the government sold out the people of Australia when it decided
that "telecommunications reform = lots of telecoms in competetion."  There
was no real consideration of the issues in detail.  The government, and the
people who support them, were sold on the false notion that running a
network, and running the services it can provide were (a) the same thing,
and (b) the same as any other business, really.  The "logical" conclusion
was thus that competition in the form we've now got must be a Good Thing
for Australia.  In my opinion, they got it wrong, and we're all going to
have to live with the consequences.  Hopefully they won't be as bad
as the U.S. network nightmare experience.

>to my means to pay for them. That doesn't mean that I don't care what they
>cost and that I think I should pay them when I make phone calls. Not even
>hardened socialists think that the telephone is the right way to raise taxes
>to pay for social security.

Aside from Telecom's CSOs, there's a very real sense in which you do this.
Telecom is owned by the Australian people, represented by the government.
In years gone by, when Telecom needed capital to get started, and to invest
in the network, and its own profits were insufficient for this purpose,
the government either provided the funds, or arranged for them to be
provided -- like any company owner, or group of shareholders.  Thus the
government now draws a "dividend" from Telecom's profits (which is as
it should be) -- usually of some 100's of millions of dollars a year.
Every dollar of this is income to the government -- money they don't
have to raise in taxes, i.e. take from the people.  This is what public
ownership of a profitable enterprise is about, and it is the tangible
way in which the people of Australia benefit from "owning" Telecom.

>I think the distinguishing mark is whether the industry manufactures
>a generic commodity (eg electricity) or a complex product. That's why
>the exchange connection is and will remain a monopoly, but the provision
>of telecommunications services should be competitive.

See?  We agree -- except that you're wrong about the exchange connection
remaining a monopoly.  There's no guarantee that this will remain the case.
In the current situation it is simply not in Optus' interests to provide
exchange connections -- which is one point of the whole "cream skimmer"
argument.  The second thing I think you're wrong about is that you need
to extend your notion of the "generic" product in this case to the entire
physical network infrastructure.

>One final point for those still reading. One of the arguments used against
>economic efficiency in (particularly government) businesses is that people
>will lose their jobs. I agree that unemployment is a bad thing, but surely
>the wrong way to utilise unemployed labour is to have it twiddle its
>thumbs in the back of a telephone exchange. I'd much rather pay a bigger
>dole and get useful work done, such a re-afforestation, destruction of
>feral cats, more railways built...

Agreed again.  How do you make the government engage in such projects, though.
To employ people to do them (and to pay higher dole) they'd need to raise
more revenue.  Once they've devalued, or sold off, all the profitable
businesses they have, and disposed of all other government assets, they'll
be left only with unprofitable ventures and expenses.  The only way to
raise revenue will be through taxation.  I can hardly wait for my next
tax rise!! Or perhaps we need total taxation reform -- what if we build
this large wooden goods and services tax...  :-)

Mark.
          --------------------------------------------------------
              Mark Summerfield,  Photonics Research Laboratory
Department of Electrical and Electronic Engineering, University of Melbourne  
                ACSnet[AARN/Internet]: summer@ee.mu.oz[.au] 
          --------------------------------------------------------
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