From: strnlght@netcom.com (David Sternlight)
Subject: Re: EFF and its growing pains...
Organization: Netcom - Online Communication Services (408 241-9760 guest)
Date: Tue, 26 Jan 1993 18:00:51 GMT

In article <bhayden.728045781@teal> bhayden@teal.csn.org (Bruce Hayden) writes:
>strnlght@netcom.com (David Sternlight) writes:
>
>>In article <1993Jan26.002006.13035@clarinet.com> brad@clarinet.com (Brad Templeton) writes:
>>>In article <1993Jan25.181210.7552@netcom.com> strnlght@netcom.com (David Sternlight) writes:
>
>>But AT&T, via Bell Labs, pushed technology. Thus we could have expected at
>>least as advanced technology (probably more because all the wasteful stuff
>>to make other carriers compatible would have been unnecessary) from an
>>unsplit AT&T. In other words, if the advanced techology paid for the
>>duplication in the presence of breakup, in the absence of breakup it would
>>have led to even lower rates. Q.E.D.
>
>Sure - but when would we have seen any of that technology implemented.
>What you seem to be forgetting is that the rate of technology change
>in the telephone industry was glacial before the breakup, in order
>to protect the AT&T investment (written off over decades) in obsolete
>equipment.
>
>Do you seriously believe that we would have had anywhere near as quick
>an introduction of fiber across the country, if Sprint had not been
>pushing AT& In today's environment, AT&T had to implement fiber, 
>and fast, because Sprint was advertising its fiber. The incentives
>were just the opposite before the breakup - to protect AT&T's multi-
>billion dollar investment in copper.
>

Your argument in the above, and what followed boils down to defending the
abandonment of capital when the costs of the replacement capital are higher
than the operating costs of the existing capital. This is a formula for
massive social waste and huge costs to the public, and flies in the face of
everything we know about the economics of investment.

When the investment plus operating costs of new technology are lower than
the operating costs of existing technology, capital gets replaced. This
usually occurs either through dramatic improvements in the efficiencies of
the new capital or through rapidly increasing maintenance costs for the old.

At bottom, you are arguing that we should "throw away" old companies to
build new ones to privide the same services. That's a good formula for
destroying an economy.

If, on the other hand, the services are new, then they would have had to be
built by AT&T absent the breakup, just as they're being  built by the
duplicative companies with redundant overhead, marketing and staffing.
AT&T would have used best current technology, and developed it themselves.

Just who do you think developed the crossbar, and the #5 ESS, MCI? Just who
do you think replaced wire with a national microwave network, and then went
to satellites as soon as economically feasible--MCI?

Most "graceful" introduction of new technogy of a "service" character has
been slowed not by AT&T but by the state PUCs who wanted to keep prices
down. Just look at the history of introduction of touch tone dialing, and
many other "features." You don't kill the messenger (AT&T) in that case, you
reform the regulators.

>Finally, you are glorifying the Bell Labs technology for technology's
>sake mind set. Sure we got the transister, and lasers, etc. But how
>much of that helped the phone company? Bell Labs was notorious for
>inventing things that had no immediate use by the phone company.
>The question is then whether it is in the public good to fund
>random scientific research through high long distance rates?
>I don't think that it was a good way to fund research, since there
>was traditionally little relationship between the social cost of 
>high long distance rates and the research being done. 

I am not glorifying anything, and your argument cannot be supported. Anyone
who knows the nature of research, and Bell Labs was paramount in the world,
knows that you need to fund many avenues, go down many blind alleys, etc.
But to call it "random scientific research" shows both ignorance on
your part about Bell Labs' science management, and is insulting to those who
ran the place. Some of the world's greatest scientists and managers have set
research policy at Bell Labs, IBM, and many other companies that were the
glory of this country before the legislators got their hands on them for
narrow populist political advantage. Bell Labs was a model for the Japanese
and many others.

>
>>If you have to pay more for "competitive service" than for a regulated
>>monopoly, then  by definition you've proven it's not competitive. In fact,
>>what we have now is even worse than a regulated monopoly--it is an
>>unregulated oligopoly and we see from the various carriers' pricing that
>>they are colluding in all but name.
>
>First, if you believe that it is an oligopoly - then you haven't be 
>deluged by these alternative providers - claiming to grossly undercut
>the big three. 

Some few niche providers or resellers don't change the basic nature of
an oligopoly.

>
>Secondly, if you can actually show that long distance rates have gone up,
>(which I doubt), your point still fails because you would be comparing
>apples to oranges. The long distance carriers have invested quite heavily
>in physical plant - and hence some, if not much of the cost increase -
>physical plant that would not have been invested in if we still had the
>Bell monopoly.
>

See above. If the plant was for added capacity, Bell would have invested in
it, and with the latest technology. One of the nightmares of the management
of a regulated public utility is to be caught short with inadequate
capacity--the regulators will really get you for that, and senior management
have lost jobs over such issues.

If the plant was duplicative, on the other hand, and it was not economic
replacement time for the old plant, then it raised costs unnecessarily. You
may personally decide to buy a new car because you like the tail fins
better, but a public utility should not.

>Have you ever been refused phone service because there weren't lines
>into the area? I have. Also been refused a second, third line (for data)
>for the reason that lines were limited. The local phone provider could
>delay additional lines for a year or two because it wasn't cost effective
>to provide such to me yet. This doesn't work for the long distance carriers.
>If I can't get through on AT&T, I try Sprint. If Sprint works when AT&T
>doesn't, I use Sprint first next time. How often on a holiday do you get
>a long distance busy signal? Not very often anymore.

You are comparing apples and oranges--local service bottlenecks with long
distance. Most reasons for unavailability of lines in an area have little or
nothing to do with the single provider of local service.

But you will soon get your wish, and even higher phone bills. Regulators are
thinking of opening up local service to competition in some jurisdictions.

For a worked example of the consequences, notice how one's energy bills
continue to increase as one saves energy, and as energy supply prices remain
level. This is due to having to amortize the same capital over a smaller
usage base.  Coming soon to your local phone bill.

....

>
>Invariably written by people biased to believe in natural monopolies.
>The problem with their theories is that they don't work.
>
>We all know (but may not admit out of personal bias) that invariably
>due to the very nature of a regulated monopoly, that they very quickly
>cease the be the low cost provider (despite your alleged phone company
>example) and become bloated and inefficient, making resource allocation
>decisions on a political basis, instead of an economic basis. 
>One just has to look at the power monopolies, or the recent cable
>TV monopolies to see this in action. 

Again, don't shoot the messenger (the regulated utility) because of bad
regulators. Most of the "inefficiencies" you refer to are actually not due
to political resource allocation, but due to the political insistence on
providing certain social services, such as TDD or Lifeline. The cure isn't
to open the door to unregulated oligopoly--a cure far worse than the
disease-- or worse, unregulated monopoly, as we've seen in the Cable TV
industry.

>
>The problem with your repeated phone company example is that the old
>phone company invested based on a multi-decade depreciation schedule.
>This meant that it could not economically replace its installed
>plant very quickly (since the PUC or whoever wouldn't approve of
>the replacement - since the old plant was not fully depreciated).
>This means that sure their costs were lower before - they weren't
>replacing their physical plant as quickly. I think that you would
>be naive to believe that we would have near as much fiber installed
>in this country if AT&T had not been broken up.
> 

See above.

>>Finally (and please don't take this personally), since you work for
>>Clarinet, which is a commercial user of the net, I need to ask if you are
>>special pleading on this issue. To forestall an equally fair question of me,
>>I have no economic or job interest in any commercial or government provider
>>or wannabe provider on the net.
>
>Oh - winning arguments by attacking motives.

No, I'm not attacking motives but asking a question. That you both fail to
respond and then shift the ground suggests that you aren't willing to make
full disclosure. We expect lobbyists to declare themselves in this country,
and then give them a fair hearing. I have identified my (lack of) direct
economic interest in this discussion--it's fair that you should speak to
that point, too.

David

-- 
David Sternlight
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