Anti-trust hammer beats common carrier control of telecoms monopolies

8 December 2014 by Steve Blum
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There are three ways to deal with a monopoly, natural or otherwise: hope new technology will eventually render it obsolete, accept it but control it with regulation, or use anti-trust rules to break it up.

In a rapidly evolving environment, waiting out a monopoly can be a viable, if uncomfortably lengthy, strategy. Microsoft’s de facto user-side control of computer technology is long gone thanks to iOS, Android and Linux, and not because of the nibbling of regulatory snapping turtles.

But at its core, the broadband industry is not rapidly evolving. That core is built around utility poles, trenches and public right of ways that haven’t changed in character in nearly two hundred years, and have only grown slowly since. Control of those assets creates an enduring natural monopoly, or its near identical microeconomic twin, a duopoly.

Railroad companies held similar advantages in the 19th century, and the modern version of common carrier regulation was developed as a counterweight. Arguably, though, it was technological change in the form of the automobile and public roads that tamed the Octopus.

Common carrier-style rules were also applied to other utilities, particularly telephone service. That regulatory regime gave the old AT&T effective monopoly control over the industry for decades, providing shareholders a steady, government-determined return on investment and customers a dependable phone system that evolved at a comfortably glacial rate.

It all changed in 1984 when anti-trust laws were used to bust the Bell System apart, setting the stage for 30 years of telecoms disruption and innovation. But the core remained: control of immutable physical assets – enabled, in part, by government action – provides the gravity that is pulling the rubble together into ever fewer, ever larger planets.

So again, we’re at a crossroads. Waiting for technology to change isn’t viable: it took a hundred years to develop trucks and interstate freeways capable of challenging rail transport. Which leaves ongoing regulation or another whack with the anti-trust hammer as alternatives to monopoly control of the telecoms market.

Right now, the debate is over what kind of regulation should be adopted: traditional common carrier rules or perpetual lobbyist-led Beltway negotiation. One imposes public, even populist, management on the industry; the other gives corporate monopolists a controlling hand. The latter may be better than the former, but either would bring us back to the slowly growing, incrementally innovating telecoms industry we knew through most of the 20th century.

It’s better to periodically break up monopolies and disrupt complacent, failed markets with anti-trust means than be mired in a perpetual battle of regulatory control. Common carrier regulation is the least-worst option on the table right now, but it’s not the best we can do.