jonny round boy said:
But, in the case of BT, the advent of competition was acheived by government regulation - the government (via the regulator) forced BT to allow other companies to use BT's infrastructure....
[snip]
True, a railroad is a great example of a natural monopoly. Once the railroads are in place, the company that owns them can run a railroad far cheaper than a competitor, who would need to lay their own track. But force the railroad company to allow it's competitors to use it's track, and the natural monopoly is no more. That's what happened with BT.
Let's think that one through. By definition, a natural monopoly cannot be broken into smaller pieces without a loss of efficiency, which in turn results in higher prices. So either BT was not a natural monopoly at any stage of production, or it is a natural monopoly at one or more stages, and now it and its "competitors" are all using the "essential facility" that constitutes the natural monopoly. So how would the latter situation look? Use your railroad analogy: competitors who own different trains can't run them at the same time on the same track. So each is given either a monopoly either on a certain portion of the track at all times, or a monopoly on all portions of the track, but only during certain times. It's no different with broadband, because the network can only carry a finite amount of signal. Hence, the monopoly profit remains, it's only divided between more firms, and the consumer still pays the higher monopoly price in the absence of direct regulation of price. That cannot have been the case if prices decreased and the only regulation forced on BT was the granting of access to an "essential facility." [EDIT: this paragraph assumes no "vertical integration." I didn't want to get into that because of the additional complication, but as I thought more about this post, I decided I should at least mention the assumption in order to explain the apparent contradiction between this paragraph and the last.]
Having ruled out the latter situation, let's turn to the former, i.e., that BT wasn't a natural monopoly at any stage of production. I added bold font to your quotation above to emphasize that the government used its
monopoly in force to coerce BT into making a deal on terms that it would not have agreed to voluntarily. If you're correct, then the government changed a monopoly into a cartel (BT's facilities can only handle a finite number of other companies). And prices decreased significantly as a result of the change from monopoly to cartel? Sounds unlikely--my hunch is that the story is factually inaccurate, in that direct regulation of price is still happening--but let's put that disagreement aside for a moment and think about a bigger problem over the long term.
When governments use force to artificially decrease the rate of return of a company like BT, investors take note and put their money elsewhere. As time goes on, internet companies in countries whose governments behave like that can't attract as much investment as they would otherwise. Today the consumer benefits, but in the long run, the consumer suffers as the amount of capital available for maintenance and improvements is less than it otherwise would have been. Moreover, each time the government is called back to review and adjust the terms of the compulsory "deal," it raises the risk of dictating a course of action that reduces efficiency. After all, how is it that the government knows what the price of access "should" be? Finally, it increases the risk of corruption. How much bribery--disguised as campaign contributions, junkets, gifts, etc.--does it take for BT's would-be competitors to induce regulators to (ab)use the power of their offices to BT's detriment?
The irony is that it's unnecessary for the government to coerce a business relationship--regardless of whether BT had a natural monopoly at any stage of production--because if a would-be competitor is able to perform one or more stages of production at a higher efficiency than BT, the competitor would be able to offer BT a price for access to the essential or non-essential facility that shares between them the "extra profit" realized by the increased efficiency. That type of agreement could be replicated by as many firms as BT's facility could accommodate, and in those circumstances the consumer would enjoy the benefit of competition at that stage or stages of production, no government coercion required. [EDIT: this paragraph assumes the monopolist is vertically integrated.]
Regards,
John
