Andy Kessler's latest WSJ piece is another gem analyzing not only the SBC-AT&T merger, but the whole sham that the incumbent local phone providers have set up. As he notes, the Telecom Act of '96 was designed to increase competition. It did so for long distance, but the details were really a gift to the RBOCs with the concept of "line sharing," which we've discussed many times before. The idea behind line sharing, of course, is that you have this natural monopoly on the last mile copper, and having everyone else build another network would be inefficient, so the monopolists should share the lines at a reasonable price. The problem is that price. It's not based on the actual cost of the lines. As Kessler notes: "Alexander Graham Bell would be so proud, mostly because he would recognize a lot of the equipment from 1875, especially the copper wires going into homes." Depreciation should have knocked the price down to just about zero. Actually, Kessler calculates it to be $0.016/month, based on a comparison with fiber lines -- which, he notes is what any company would install today. Instead, it's based on the cost of wiring up new copper lines today. As he says: "that's like figuring the price of getting to Europe using the hypothetical cost of digging a tunnel under the Atlantic Ocean, instead of computing airfare." However, that's exactly what the Bells have been able to do, which is why they got away with charging $18 - $22 per month per line, and claiming they were being robbed blind. So what does this have to do with SBC buying AT&T? SBC's business is entirely propped up on the basis of keeping the prices of these copper lines beyond what they're really worth. They can't do that if there's real competition. AT&T, with its own network, was beginning to threaten to become real competition, routing around the copper last mile monopoly. Taking over AT&T helps keep out the competition, and helps SBC pretend that there's a real business proposition in their copper lines for a little longer.
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