Monopoly Money

     Some businesses take more money and have to overcome more barriers to entry to start than others. For example, if you wanted to build cat condos for a living, you could put a $35 ad in the local paper and wait for an order before building one. Eventually, with good word of mouth, you might hire some help, rent out manufacturing space, and produce a catalog. However, say you wanted to build a computer operating system for a living. Not only would you have to build a top-notch system on your first try, you would have to try to convince computer manufacturers to use your system instead of Windows, even though 97% of PCs use Windows and most of those users have no desire to learn something new. If you really wanted to break into the mainstream market, you would probably have to buy or buy off most of the major computer manufacturers. That would cost a lot of cash, especially considering that Microsoft could probably outspend you no matter who you are.
     That's the power of monopoly. Brief economics refresher: There are two types of monopolies. There are legal monopolies and De facto monopolies. Microsoft Windows is a De facto monopoly. Even though anyone is free to compete, the hurdles they have to face are virtually insurmountable, at least until there is a major technological shakeup in the industry. De facto monopolies are legal, contrary to popular opinion. They cannot, however, abuse their position. They cannot, for example, threaten to deny Windows from one manufacturer unless they promise not to install Netscape, a product that competes with another Microsoft product, Internet Explorer. Because the two products are distinct, Microsoft can't abuse their Windows position to punish IE's competitors.
     The other type of monopoly is a De Jure monopoly, or one specified by law. AT&T used to be a De Jure monopoly. In most places, cable television still is. In my neighborhood, we can't choose which cable company to use. It's Comcast or nothing. Rates are way too high, but they're being held down because they're facing competition from the satellite providers. They did, however, find another way to abuse their monopoly status. There are 3 basic ways for the average consumer to get internet service: Dial-up, DSL, or Cable. (There are other ways, but they are extraordinarily expensive, and thus are usually reserved for large apartment buildings, schools, or businesses) DSL, which runs through your phone line, and Cable are the only two ways to get high-speed internet. The FCC ruled that even though the cable companies and phone comanies had a monopoly on TV and telephone service, they could not use it to unfairly compete against internet providers. That is, anyone trynig to provide high-speed internet would have to install their own wires, while Comcast could piggyback on the cable wires that were paid for by their TV monopoly. Therefore, the cable companies and the telephone companies were forced to rent out their lines at market price to any internet provider, including their own. (Comcast cable would have to pay Comcast TV rent, just like AOL or Mindspring would) That would level the playing field.
     To make a short story long, in another in what is sure to be a long string of poor decisions, the Supreme Court ruled today that cable internet was an "information service", not a "telecommunications service" and that therefore they could not be regulated by the FCC. That means they don't have to rent out their lines. Now, I'm not a Supreme Court justice. I'm not even a lawyer. But I'm reasonable sure that internet is a lot closer to being telecommunications than information. Given that the whole point of the internet is to communicate, and that internet service has information flowing both ways, and that my telephone service, Vonage, is carried over the internet, I'm pretty sure I'm right. According to the article, telephone companies are now looking to get reclassified so that they are not subject to FCC regulation either. In all honesty, that's fair. Why should the telephone companies have an unfair advantage to the cable companies?
     But then again, why should Comcast have an unfair advantage against Earthlink? Business is about risk. Products are priced with risk taken as a factor. If you're selling milk, your prices will have a little extra added in to compensate for the risk of not selling it fast enough before it spoils. If you're buying bonds, you get a better rate of return for the ones given by shakier companies to compensate for the risk of default. When Comcast and BellSouth can have internet service with 0 risk, how can anyone compete? Comcast did not invest in cable lines because they hoped it would payoff someday when internet took off. They invested in the lines with the guarantee from the government that they would make a profit from telephone service.
     So what's next? Will Comcast tell me I can't use Vonage through their service? Will they force me to use their VOIP service? Will they raise their prices to the point where I have to choose between internet and a car payment? So far, I have to admit, they've been very good to me. But that was when they faced competition. Will they be so quick to help me on their 800 line when they know I can't jump to a competitor? (Because I have VOIP, I can't use DSL) Read the Supreme Court decision for yourself. It's interesting to see who dissented. Scalia wrote the main dissent. Thomas wrote the opinion of the court. Scalia's dissent was actually very interesting to read and full of sarcasm and disbelief in how his peers ruled on this case. It's a strange day when I agree with Scalia.