Definition of monopoly and the problems with wireless

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Bill St. Arnaud" <bill.st.arnaud () canarie ca>
Date: October 17, 2004 8:23:31 PM GMT+01:00
To: dave () farber net, 'Ip' <ip () v2 listbox com>
Subject: Definition of monopoly and the problems with wireless
Reply-To: bill.st.arnaud () canarie ca

Dave:

You can have more than one big company in a market and still have a
monopoly situation.

Economists use a measure called the Herfindahl index to determine if a
market monopoly exists.
http://itech.fgcu.edu/faculty/bhobbs/bds7/sld001.htm

Essentially the Herfindahl index is a sum of the square of the market
share of the companies.  If the Herfindahl index is over .6, economists
consider this to be a monopoly market (regardless of the number of
companies), a ratio between .2 and .6 is considered an oligopoly, and
less than .2 is considered perfect competition.  So in many US markets
even though there may be 3 or more broadband players, you may still have
a monopoly situation.

Why there is concern about the US broadband penetration is because many
feel the low penetration is a refection of lack of competition as 
opposed
to lack of demand.

It is probably unfair to compare the US situation with Korea or Japan.
Canada is probably the closest market to the US in terms of market
density, suburban sprawl, culture and social factors etc.  Yet Canada 
has
a broadband penetration significantly higher than the US, and second (or
third) in the world to Korea.  Canadian penetration is much higher
because of vigorous competition, largely between cablecos and telcos.

Wireless Internet companies are struggling not because of technology but
because of the business case for Internet.  It is very hard to make 
money
selling Internet until you reach sufficient market size of several
hundred thousand subscribers. The current cost for a cableco to serve a
subscriber is less than $2.00 per month, and that cost will continue to
drop with more and more subscribers.  It is simply impossible for a WISP
(who are mostly small companies) to compete against that cost base,
especially given the amortization costs of antenna and towers, as well 
as
the cost of roof rights.  Wireless has low entry costs, but on large
scale it cannot compete with cable and DSL. It will remain a niche
market.

Cableco and telco executives always like to point out to regulators that
BPL and wireless will provide facilities based competition as a way to
deflect criticism from their own monopolies.  In their dreams.

One final fact should be noted: the reason why we at least have
competition between cableco and telcos is because the FCC (and the CRTC
in Canada) for many years forbade telcos from carrying TV video signals.
This allowed a nascent and struggling cable industry to grow up and
develop the financial muscle to take on the telcos.  If the FCC had
allowed the telephone companies to deliver TV we would have a situation
like we have in countries like Australia where there is virtually no
broadband competition (and hence low penetration)

Bill






---------
Bill.St.Arnaud () canarie ca
+1.613.944.5603

> -----Original Message-----
> From: owner-ip () v2 listbox com [mailto:owner-ip () v2 listbox com] On
> Behalf Of David Farber
> Sent: Saturday, October 16, 2004 11:59 AM
> To: Ip
> Subject: [IP] more on FCC adopts rules for broadband over power lines
>
>
>
> Begin forwarded message:
>
> From: Brett Glass <brett () lariat org>
> Date: October 16, 2004 4:34:57 PM GMT+01:00
> To: dave () farber net, Ip <ip () v2 listbox com>
> Subject: Re: [IP] more on FCC adopts rules for broadband over power
> lines
>
> Dave:
>
> For IP; it's important to respond to and correct some of the assertions
> made in responses to my original posting.
>
> Gerry Faulhaber writes:
>
> > "...three large, entrenched monopolies"?  Just a reminder: monopoly
> > means one firm, not three.
>
> Exactly. They are each already monopolies in a different product area.
> Which means that each can use its respecive monopoly to subsidize
> expansion
> into others -- in exactly the same way that Microsoft leveraged an
> operating system monopoly to dominate other markets. It will be the
> rare and lucky customer, however, who can obtain broadband from any
> of the three. In the vast majority of cases, there will be only one
> or two. And where more than one exist, there is more likely to be a
> comfortable oligarchy than competition.
>
> > Not getting spectrum out at prices ISPs can afford for wireless BB?
> > Is the FCC supposed to be the ISPs mommy?
>
> The FCC clearly did this (and still does it) in the case of broadcast
> radio and television. Those businesses would simply not be feasible if
> it did not. Is the FCC being THEIR "mommy?"
>
> > The licensed spectrum will go at auction and those who value it most
> > will get it.
>
> It would be more accurate to say that those large corporations which
> most
> value foreclosing competition from wireless broadband, or who want to
> use
> it for things which are more profitable than wireless broadband (cable
> and
> DSL have pushed prices for broadband so far down the learning curve
> that
> even cell phones are far more profitable) will get it.
>
> > If ISPs think it's valuable for wireless BB that will be reflected in
> > their bids.  If they don't, they won't, and they'll be out of the
> > game.  They are running with the Big Dogs; if they can't keep up,
> > tough.
>
> Should the same have been said for Netscape? Other companies which
> Microsoft
> destroyed by leveraging its other existing monopolies?
>
> > And complaining that WiFi is in Part 15 spectrum so that there is
> > potential interference from cordless phones?  Good God, the tech
> > community has been championing commons spectrum, telling us how
> > technology will solve the interference problem.
>
> A few outspoken individuals have been making this claim without either
> scientific proof or real life experience, and many economists --
> especially
> those who tend to take positions that favor large businesses -- have
> swallowed
> it. I wish it were true; however, as an electrical engineer who has
> been
> working on real life wireless broadband since 1983, I believe that I am
> eminently qualified to state that it is unsupported demagoguery. Real
> life
> wireless broadband providers, who are out there in the trenches, know
> this.
> The simple fact is that, under the current regime, wireless broadband
> providers cannot offer service which comes anywhere near the
> reliability of
> a wired or fiber connection at a cost that is competitive with them.
> (They
> could at extremely high cost -- if they were to outbid the cell phone
> companies for spectrum. However, due to the low geographical
> granularity of
> the auctions and the absurdly high amounts bid, no WISP can buy
> spectrum at
> a cost that allows it to compete.)
>
> > And now we are whining that there's interference at 2.4 GHz?  No
> > kidding; what do you think happens in a commons?
>
> To state this fact isn't "whining;" it is recognizing that the FCC is
> precluding competition by not doing for wireless broadband the same
> things it has been doing for decades for over-the-air broadcasters.
>
> > Rather than whining that ISPs don't have dedicated spectrum for BB,
> > why not actually implement the tech community's claim to be able to
> > solve interference with appropriate hardware/software protocols so we
> > can use commons/Part 15 spectrum?
>
> Because this claim is provably false. As James Doohan famously quipped,
> "Ya canna change the laws of physics, Captain." Any increase in
> robustness, given the same limits on bandwidth and power, MUST come at
> the expense of a decrease in throughput. Which is exactly what is now
> happening on the various Part 15 bands. We now see systems like
> Motorola's
> Canopy, which offer less throughput than others (and, hence, make less
> efficient use of spectrum) but are designed to be the "last system
> standing"
> when multiple providers compete for the use of the Part 15 spectrum.
> The only way to compete with this strategy is to design a system which
> is more robust but slower and more inefficient still! This is what
> happens in a commons where there are no holds barred: everyone loses.
>
> Real life commons that work have sensible rules. Highways are divided
> so
> that traffic traveling in opposite directions is in different lanes.
> Lanes
> are reserved for emergency vehicles and carpools. It isn't legal to
> knock someone else's car off the road and take over. Part 15 has
> no such rules, which is why there is currently bedlam on the airwaves
> in the unlicensed bands. I know; as a wireless ISP, I deal with it
> every
> day. I've developed one of the most reliable systems in existence, and
> it's still nowhere near reliable enough. The FCC rules preclude it.
>
> --Brett Glass
>
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