regulation/deregulation of communications

[David Farber <farber () tmail com>]

-----Original Message-----
From: David Feldmeier <dfeldmeier () gazelletech com>
To: dave () farber net
CC: dfeldmeier () gazelletech com
Subject: [IP] regulation/deregulation of communications
Date: Wed, 08 Jan 2003 11:21:25 -0800

Dave,

On the topic of the regulation and deregulation of communications, we 
need to talk about both "natural monopoly" and competition, and where to 
draw the line between them. It has long been recognized that certain 
businesses are natural monopolies, and this originally applied to things 
such as electric, natural gas, and telephone service. The idea behind a 
natural monopoly is that it does not make sense to provide multiple 
connections (e.g., electric lines) to the same place.

Things have shifted over the last decade or two to allow competition for 
services that were previously natural monopolies. However, really what 
is happening is not pure competition; there is still some part of the 
system that is a natural monopoly. For example, previously, both the 
generation and delivery of electrical power were a natural monopoly. 
Today, however, electrical generation is competitive and the natural 
monopoly has been reduced to only the power delivery system. The same 
thing is occurring with communications. The introduction of competition 
reduces, but does not eliminate, the existence of a natural monopoly. 
The issue is where the line is drawn between the competitive and natural 
monopoly elements in the system.

The minimum natural monopoly would seem to be the copper and fiber-optic 
cables of the distribution system. The problem is that the owner of the 
distribution system wants to maximize the functionality of the natural 
monopoly element. For example, the owner of the distribution system 
might want to provide packet transmission service as the interface to 
competitors, rather than a bit transmission service or a direct access 
to a fiber-optic cable. The companies that compete with the distribution 
system owner want to minimize the functionality (and cost) of the 
natural monopoly, and would prefer access direct access to fiber-optic 
cables rather than utilize a bit transmission or packet transmission 
interface.

One solution is to provide competitive distribution systems, such as 
cable TV, satellite and wireless. It seems to me that there is 
reasonable competition here, as I can obtain access to TV via cable TV 
or satellite, access to Internet via cable TV, copper, wireless and 
satellite, and access to telephone via copper or cable TV (at least in 
some areas).

Another solution is to split the companies that own the distribution 
systems into two pieces: a regulated natural monopoly that provides a 
minimal set of services and a competitive company that interfaces to the 
natural monopoly in way that is identical to the other completing 
companies. Of course, politics is the driving factor here.

                                                                                                -Dave

        David Feldmeier, President
      Gazelle Technologies, Inc.
      114 Escobar Avenue
      Los Gatos, CA, 95032
      Tel: 408-483-0690
      Fax: 408-356-4673
      dfeldmeier () gazelletech com
      www.gazelletech.com
-- Dave

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