SBC, Ma Bell, And Why Line Sharing Should Cost 1.6 Cents A Month

from the damn-competition dept

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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Comments on “SBC, Ma Bell, And Why Line Sharing Should Cost 1.6 Cents A Month”

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acousticiris says:

I have to disagree...

…The monopolistic philosophies of these aging RBOC/LD carriers hasn’t changed. They’re also taxed to death (in Michgan, a local phone line doesn’t come without $19 dollars in additional fees regardless of who delivers that line).
The reality: These two companies put together are going to produce one giant disaster. SBC is comprised of several Baby Bells who were used to operating under the premise that “We don’t have to care, we’re the phone company.” Ameritech (an SBC company) actually ran an ad campaign in 1997 that was focused on putting a personal touch on Ameritech. It involved commercials featuring “blue collar” workers with slogans like “My Uncle works for Ameritech.” It sounded disturbingly like the cries from the 80s that people should only buy American cars when they could find Japaneese vehicles that cost less and were more reliable. Rather than fix a horrible organizational problem, they thought Marketing (guilt, or in the case of the 80s: threats of getting your car keyed in the parking lot) could brainwash consumers out of it.
And now you have AT&T, who is a huge telecom … dwarfing its competition in the amount of customers it has…but it still hasn’t changed. It’s still operated like a giant bureaucracy that works under a set of “rules” regardless of what the market is dictating.
When you put two bureaucracies of that size together, you end up with nothing but bad customer service, and old (reliable) but inflexible and unadaptable networks that will never work well with eachother and will probably end up resulting in higher costs and lay-offs for both enterprises.
Interestingly enough… there was one large telecom that tried to adapt to a VoIP world…They had a big marketing campaign about how their network was already serving next-generation customers (before they were called VoIP providers). They tried to adapt their aging network and convince customers that they already had…I think they were called WorldCom, or MCI*Worldcom…wait, no, MCI… or… who are they now? Enron? Who can keep track.

Mikelele says:

Price of copper

Any of you have thoughts on the impact the price of copper is at the moment (2.20/lb) would have on the cost of maintaining the last mile. Don’t matter what jurisdiction, US, Europe, South America. It seems to me that it should have minimal impact given that the asset life of copper, ducts etc in the industry is about 15-20, so a moving average of the price is what should count and even then what percentage of costs would it make up? 5-10%…any help greatly appreciated. i got a telco here in latin america telling consumers that fixed calling price have to go up because the cost of copper is so high.


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