Which got me to thinking about deregulation in the phone industry. Its been twelve years since the 1996 Telecom Act. I remember how it used to be when you wanted to get phone and internet service back in the day. I called the local phone company, got a two hour window, and someone showed up during that two hour window. Now, with deregulation, we have competition - now I can't get phone and internet service not just from one but rather from two companies that won't show up to provide me with that service. One company that provides the service, even if its a monopoly, beats two that do not in my book.I too remember life--just barely--back before deregulation, and what I remember is that it used to take two weeks or so to get an appointment to have someone show up. I also remember waiting in vain for the cable guy in 1993 in college, though perhaps that was a fluke. But in general, I seem to recall that pre-deregulation phone company customer service fairly shouted "If you don't like it, you can try another company. Oh, wait, you can't. I'll be back in a month with that new part."
Now, before someone points out that the service is better now - internet is faster - well, technology advances. My guess is that the improvement in technology available to the consumer from 1984 to 1996 is more significant than the improvement from 1996 to 2008. (Anyone remember using a BBS?) And the improvements on the cell phone side of the business seem to come mostly on the manufactured hand-unit, which was never regulated because it isn't a natural monopoly. The rest comes from the switch, and that isn't manufactured by the former natural monopoly either.
So I thought a bit about deregulation, and realized its not just in the phone industry that service has gone to heck. How about them airlines? And I understand that there were a whole bunch of people waiting out front of IndyMac the other day. The fact is, in a lot of industries, deregulation has not lived up to expectations. Not for consumers, but not for the companies either. How many airlines went out of business in order to provide lousy service with a nickel-and-dime attitude today? How many phone companies? I'm sure its been a success story in some industries, but maybe it behooves us to think about how to do it so that it truly lives up to the many promises we heard.
I certainly don't remember getting fast, effective internet hookups from my providers, since of course in 1996, obtaining internet access consisted of buying a modem and waiting twelve years for a web page to load--DSL/Cable internet was a phenomenon of the (very) late 1990s. My family was an early adopter (so early that I actually wired my parents' house for ethernet with my own two little hands, because wireless routers cost $1,000 or so) . That was around 1998.
And it's very possible that without the telecoms act, we wouldn't have had high speed internet to the home so fast--why bother, unless you're worried that someone is going to take business from you?
But what I really remember is that I used to pay $9 just to get a line, then another charge to actually have local service (I had friends in college who paid the $9 and then made people call them, because the only call they could make was to 911), and then a third fee to have long distance, and then of course many cents a minute if I wanted to actually use that long distance. As it happens, I was making a lot of transatlantic phone calls right before deregulation, and my bill was in the hundreds of dollars.
Now Vonage will give me unlimited long distance to five European countries, and low rates to the rest, for $25 a month. I do not long for those halcyon days when voicemail was $5 a month, call waiting another $3 or $5, and caller ID--well, what are we, Rockefellers?
Like everyone else, I hate the delays and various indignities of flying. On the other hand, I like the fact that it's costing me $100 to fly to Tampa to pick up my car in two weeks; absent deregulation, that trip would cost a lot more than twice that amount. I think it's telling that complaints about deregulation of the airlines come almost entirely from three groups of people:
1) People who have no idea what they are talking about
2) Affluent people
3) People who fly a lot for work
The third group, especially, would like to basically cut the bottom out of the market, so that coach is a vastly more pleasant experience. They don't care that this will raise prices, because they aren't paying for the tickets--most of them probably don't particularly care if this means that they fly less. But of course, the only way to raise the level of service is to raise the cost, which means a lot of people who don't have jobs that send them hopping from city to city wouldn't be able to fly at all. Remember the Brady Bunch trip to the Grand Canyon? You young people may not remember, but that's what <i>all</i> family vacations used to look like. You may climb into the back of a station wagon for a two day trek to Canada, but I'll take flying, thanks awfully.
I've still got one of those indestructible Western Electric phones - the one with the rotary dial. We sould still be using them absent deregulation. AT&T had a captive market, large fixed costs and no competition.
There's a valuable (unwitting) vignette from the age of regulation in John Fowles's _Daniel Martin_. The narrator is reasonably wealthy -- he flies first class to Egypt for a vacation -- but once there he calls his fiancee only once a week, and briefly, to economize.
I wonder if "Cactus" is truly more than twelve years old?
Things I can't understand #4432: American and Jetblue both offer flights between BOS and SFO. Jetblue offers cable TV and 36" of seat pitch. American offers no cable and 32" of seat pitch. Why is anyone on the AA flight?
One would think that a Singapore Airlines US division could do amazingly well offering comfort and service for say 20% more. The problem, I fear, is that most American's are cheap bastards and if given the choice between Northwest at $200 round trip and Singapore US at $240 they would go with Northwest. That is what opponents of deregulation object to - they feel the government should force people to buy a level of service higher than they would other chose to.
I'll make this bold statement:
If it wasn't for the CLECs clamoring for a DSL infrastructure, the Northeast would still be using ISDN and Frame Relay as their two "High-speed" internet connections. New England Telephone and Telegraph (which begot NYNEX which begot Bell Atlantic, which begot Verizon) had no interest in investing in cheaper DSL-based Internet services. It was happy to overcharge customers for the older technology.
Your area's telephone service may be different. However, it was only recently that we here in Massachusetts got a reprieve from paying a dollar extra per month for that fancy "Touch-Tone" service.
"If you don't like it, you can try another company. Oh, wait, you can't. I'll be back in a month with that new part."
I believe the correct "Ernestine" quote is, "We don't care. We don't have to. We're the phone company".
Telecom deregulation was great for about 4 years when dinky carriers were popping up everywhere offering $0.03/min long distance calling, some even with fractional minute timing. Then they all got bought up, and by 2003 I was stuck with ATT again. VOIP came to the rescue for some, but I haven't carried a landline in four years now. And even with that you're at the mercy of your internet provider.
There are, what, three major cell carriers left, none of which seem to compete on pricing. The standard business model is to lock people into 2 year contacts, making prices even stickier. And the deals struck between phone makers and carriers (ATT - Apple, Motorola crippling Verizon's Bluetooth) are designed to reduce customer choice. Yeah, this is working out great.
Broadband service is a joke. Please compare service here and in other developed nations. I live on the main line of Philly and my only options are Comcast cable and Verizon DSL. FIOS won't even pick up the phone to wire my apartment, even though it's available across the fscking street.
Competition, my ass.
WRT Flying, its the business guys who aren't responsible for the ticket cost who do the complaining. I've seen them complain when on $7K business class transatlantic jaunts.
As a small business type who pays all the bills, deregulation in both telecoms and transport has dramatically extended our reach. It's a great benefit even if things are crowded with the huddled masses. My biggest complaint is unreliability which is caused by ATC/Airport limitations.
Matt B,
Do you think enough of your neighbors would sign up for FIOS to make it worthwhile to wire you building? Or, is it likely, that if Verizon did spend the money to wire your building and charged enough to cover that cost, most of your neighbors would stick with Comcast or DSL?
Again, I think what you want is the government to mandate that people purchase a level of service higher than they otherwise would.
The only difference between BBSes and internet in 1996 was everything not related to the phone company. The modems were faster, but that had nothing to with the phone company. There were more sites to go to, also unrelated to AT&T. DSL became widespread after deregulation.
Though I agree, our internet access sucks compared to Europe, Japan and South Korea. It's not like I live in the boonies, I'm in fricken Manhattan.
The real problem here is not "bad services" it is "bad memory".
We remember the good of the old days better than we remember the bad.
There is very little about the 60's or 70's or even 80's that I would want to go back to. The only thing I can think of that was better is the whole transportation security process.
Technological progress is not a given. There are huge swaths of history without much progress.
Anyone remember when people would call a business and announce that they were calling long distance since rates were so high that it was very costly to be put on hold for a long time?
The good ol' days of phone company regulation? I think not.
I've practiced telecom law for several years and written scholarly articles on the subject. I'm still stuck at wondering what makes anyone describe the 1996 Act as "deregulation" insofar as it concerned local telephone service . . . .
The airline industry is hardly "deregulated." See this brief explanation.
When I was Child I drove to the Grand Canyon with my dad from Detroit, It's nice to see a large portion of our country up close, which would have been impossible had we flown. Of course now I fly all the time.
The real problem here is not "bad services" it is "bad memory".
We remember the good of the old days better than we remember the bad.
There is very little about the 60's or 70's or even 80's that I would want to go back to. The only thing I can think of that was better is the whole transportation security process.
Technological progress is not a given. There are huge swaths of history without much progress.
Back in the days of government-mandated price-fixing, airlines overinvested in services. Then we had deregulation, and Southwest outcompeted the old carriers because it turned out that consumers would rather have lower prices than in-flight movies and airline "food".
"Now, before someone points out that the service is better now - internet is faster - well, technology advances. My guess is that the improvement in technology available to the consumer from 1984 to 1996 is more significant than the improvement from 1996 to 2008."
Revisionist history is so much fun.
In 1984, access to information services (yes, I remember BBSs. I also remember CompuServe, The Source, and the like.) was most commonly via a 1200 bps Hayes Smartmodem. By 1996, you could get a V.34 modem that could get you 28.8 kb/s - a 20-fold increase in capacity in 12 years.
Today, 6 Mb/s data rates are common with either cable or DSL service - a 200-fold increase in capacity in 12 years.
I would say the increase in technology available to the consumer (at least in terms of internet access) is an order of magnitude greater since 1996 than it was from 1984-1996.
Of course, I'd also say that TA96 had absolutely nothing to do with that - it's wholly due to Hybrid Networks, Com21, LANCity, and Motorola coming up with a technology to send data over CATV plants, and a few cable operators thinking it would be a good market to get into. Telcos had no interest in DSL internet access until they saw their lunch being eaten by the cablecos.
I found it v. amusing that this fellow, in his longing for regulation, takes technological progress as some sort of exogenous factor. Like the type of operating environment affects technological progress not at all: it's just mana from heaven that comes at a given rate regardless of whether there are incentives for it or against it.
He's also, as DG Lewis points out, just plain wrong about the rate of technological progress being greater during the de-reg period than after. Just wrong, wrong. Couldn't be more wrong.
But this is the way the left so often seems to think: all the good things that come out of capitalist-style systems are givens that would have happened regardless, while all the bad things are direct results of the systems. And intelligent, well-meaning people could easily prevent all the ills without affecting any of the benefits if given enough power. The fact that there is much evidence against this premise never seems to sink in or phase them.
Megan, I'd love to know your take on Former American Airlines CEO Bob Crandall's take from this speech (http://startelegram.typepad.com/sky_talk/2008/06/crandall-airlin.html), where he says things like the following:
"I feel little need to argue that deregulation has worked poorly in the airline industry. Three decades of deregulation have demonstrated that airlines have special characteristics incompatible with a completely unregulated environment. To put things bluntly, experience has established that market forces alone cannot and will not produce a satisfactory airline industry, which clearly needs some help to solve its pricing, cost and operating problems."
He definitely doesn't fall into any of your three groups!
Alex,
I think you are right - Megan should include
4) Employees of major carriers who would benefit from less competition
Though I think we all assumed those people would be arguing for the government to prevent competitors.
I too remember life--just barely--back before deregulation, and what I remember is that it used to take two weeks or so to get an appointment to have someone show up.
And I remember, as a little kid, accidentally let slip to a phone repair guy that we had a second phone in the basement. The phone itself, was illegal, since you weren't allowed to own your own phone, and the line was illegal, since you had to pay the phone company to run the wire and pay them a monthly fee for the extra wire and renting the extra phone. I believe it worked out OK, though, because my Dad, knowing the phone guy was coming, had disconnected the second line before he got there.
I also remember, about 15 years ago, when European countries had highly regulated state phone monopolies that charged a fortune for both phone and internet. Local calls were billed by the minute and so, too, were calls used for dial-up net access. Had a friend living over there who complained about it frequently. And then deregulation happened in Europe as well:
http://query.nytimes.com/gst/fullpage.html?res=9F0CEEDC123FF932A05756C0A965958260&sec=&spon=&pagewanted=all
In general, this is just one more data point to support the feeling that every discredited statist idea is now being retrieved from the bottom of the slag pile and dusted off. Shudder.
Tampa?! Your Bay Area Sunshine State readers want to buy you dinner. Contact us!
What's wrong with road trips as family vacations? Those are the only trips my family has ever taken. Most destinations for families aren't much better at the end of a plane ride(even as a small child, I was just as happy at Wonderland as I would have been at Disneyland), and so you might as well enjoy getting there instead of spending thousands of dollars extra to say you were a thousand miles away for a week instead of a day.
Also, on deregulation, I'd be hard-pressed to name a single downside to it. Competition works.
Two cultural data points on the pre-1986 telephone company aptly describe the times:
a. http://en.wikipedia.org/wiki/The_President's_Analyst
b. As mentioned above, Lily Tomlin's Ernestine:
http://www.youtube.com/watch?v=k9e3dTOJi0o
Nuff said...
In 1984, a 1200bps modem would have been pretty fancy, and in 1996, a 28.8 was definitely off the cutting edge (56k was available at the time, and as a senior in college, I had a campus-provided network in place - and not at a major tech school). But the difference between those two in terms of what you could actually do wasn't much; we replaced a very-low-bandwidth, text-interface world that you had to pay per-minute fees for with a low-bandwidth, sorta-graphical-interface world that you paid a fixed fee to access. Compuserve could get you a lot of what the very early Internet would, if a lot more expensively.
Then we got serious about it. Remember the first time you saw Google Maps?
Heck, DVDs. iPods. VOIP. Podcasts, GPS, affordable notebooks, PDAs, you name it. The only thing that has gone down is the quality of the voice transmitted (remember how Sprint's current symbol is derived from a stop-motion of a pin bouncing off the floor?), but nobody minds much - we've grown quite accustomed to sorting through that particular bit of distortion, much as previous generations got used to pops and crackles in records.
The real problem here is not "bad services" it is "bad memory".
We remember the good of the old days better than we remember the bad.
There is very little about the 60's or 70's or even 80's that I would want to go back to. The only thing I can think of that was better is the whole transportation security process.
Technological progress is not a given. There are huge swaths of history without much progress.
'Cactus' has dedicated his life to embarrassing the econ dept. at UCLA--Harberger specifically--as he claims to have a Phd from there.
Tom Kelly - I think you need to hit the 'refresh' button. Your comment from 10:21 AM went through just fine. So did the one at 11:45 AM. And the one at 5:39 PM. I'm not trying to bust your balls - I just wanted to spare you a bit of effort.
The Brady Bunch also went to Hawaii.
Well,
What was a post (cactus) on an annoyance there became a statement on national policy here. Nice.
Dial up did not take twelve years, Meaghan, so the memory must be as silly as cactus's posting on an annoyance. Or folksy reminisce be allowed more than simply here.
I do think that if you or commenters believe 6 mps is grand, you need to go abroad to try 20-25 mps as a regular feature.
For a blog mentioning economics, comments should have read "What is your point?" and moved on.
The conflation of Thoma's post and infrastructure was simply bad writing on your part. Happens to us all sometimes, but avoid the snark for better writing. There are plenty of issues of substance to argue, but accuracy in commenting on another's post should not be optional.
I was a telecom analyst during the Internet boom, and I was struck then and continue to be struck by the degree to which the "news" media has been willfully ignorant of the basic issues at stake.
I say "willfully," because during those years I was regularly contacted by all of the household names in the media -- WSJ, WP, NYT, USAT, Fortune, Forbes, Busy Week, and more -- and none of them ever reported the reality of the situation and none of their people showed even a passing interest. It was eerie to be called repeatedly, only to fill a quote-hole in their stories.
Finally, I just gave up trying to tell these people what was actually going on. There is only so often that you can beat your head against the wall until you decide not to do it anymore. Now's the time for me to launch into the narrative about what's really happened, but I'm not going to bother. Instead, here are a few comments in passing:
1. The '96 Act had nothing whatsoever to do with "deregulation."
2. The CLECs had nothing to do with a "DSL infrastructure." In fact, the CLECs were never interested in being telecom operators. Every single CLEC was a stock scam. I know, because I dealt with them. And don't think this makes me friends of the RBOCs. They're evil, too.
3. You think you're pulling one over on the wireline operators by switching to a cellphone? You blind fool, first off, did you ever stop to check who owns the wireless carriers? Second, check your bill and see how much you spend for your cellular service. It's almost certainly a lot more than you ever spent for your wireline.
4. The wireline carriers couldn't care less whether you drop your servicce. In fact, they'd prefer it that way. Residential wireless has always been a money-loser. The wireline operators are eagerly awaiting the day that enough customers drop their service to allow them to shut down their networks and then do what every business does with worn-out assets: dump them in the government's lap and then call the government a bunch of communists.
That ought to be enough to keep you arguing for a while. Oh, and the idea that European wideband services are relatively cheap because of "deregulation" is the biggest crock of horseshit since ... well, let's see ... since last week when Jon Stewart put some neocon from the Brookings Institution on his show and portrayed him as a progressive voice on Middle Eastern affairs.
I'm telling you, a country gets the civic culture it deserves, and ours is a joke.
Oh, Gil Gilliam got there before me! Back in those good old REGULATED days, when there were evil villans like SPECTRE and SMERSH and ... (gasp) TPC!
The Analyst writes:
Actually, no. Teleport and Metropolitan Fiber were actually facilities-based carriers who built and operated metro fiber networks. They were interested in, and successful at, being telecom operators, primarily in operating parallel local networks for special access bypass.
Others had a business model based on regulatory arbitrage serving ISP customers - build a big trunk group into the ILEC local tandem, connect it up to the ISPs dial-in modem bank, give the ISP service for free and make money collecting reciprocal comp payments from the ILEC. When the ILEC lobbyists got the FCC to kill RC for modem calls (even though it was the ILECs who insisted on RC instead of bill & keep for local interconnection in the first place, and they won the daily double by keeping it in place for everything other than modem calls), this business model imploded and the CLECs using it did likewise.
Still others tried to simply buy UNE-P and make money by reselling the ILEC service; not a great idea, since residential POTS is pretty much priced below cost.
Finally, I'm sure that some, as in every bubble, were stock scams, ponzi schemes, and the like.
But saying that "every single CLEC" was a stock scam is painting with somewhat of a broad brush.
I dunno. The wireline carriers get on average $36/month from a residential line (FCC data). AT&T, for example, has about 33M residential lines. That's about $14.25B per year. And considering the incremental cost of providing this service is close to nil (dedicated capital assets like loops and switches are pretty much fully depreciated; to the extent that shared capital assets like interoffice transport isn't fully depreciated, new investment is driven by data demand, not voice traffic; the only network cost is on the order of maybe $10/year to cover operations and maintenance), it's high margin.
Not that they want to invest in it - they're "harvesting revenue". But all things being equal, they'd rather the customers stick around.
Plus, even with the LECs losing 8%-10% of their customers per year, it would take quite a while for them to lose enough customers to "shut down their networks".
Re: I also remember waiting in vain for the cable guy in 1993 in college, though perhaps that was a fluke.
Perhaps you have not any dealings with the cable companies lately. They are still a pain in the butt. Comcast and Time Warner both have places of dishonor in my Customer Service Hall of Shame.
Re: Broadband service is a joke. Please compare service here and in other developed nations.
I have often heard this, but other than in Canada I have never experienced the Internet in any other nation. Still, how fast does it need to be? My own service is abundantly fast and such limitations as I run into are due mainly to the limitations of my own PC, or of the website that I am accessing (such as this one, which requires an age of the world to post.) Bragging about, say, Japanese broadband is rather like bragging about German cars engineered to do 140mph: sure that's nice, but how many people really need that sort of speed? We should also recall that it's been less than a decade since we discovered that we had built far too much telecom (of all sorts) infrastructure and suffered a nasty recession partly as a result because the demand was simply not there
.
If however you want to talk about cost or service (as opposed to technology) I'm all ears.
I live in Silicon Valley and can't get broadband. I can drive to the headquarters of Apple, Google, or Yahoo all in about 10 - 15 minutes, but I can't get high speed internet at my house, and neither can the other 9 houses on our street (no company seems to think its worth extending the underground cables another 70 feet for us). Recently, me and one other neighbor contracted with a husband and wife company to have our internet beamed to us via microwaves from the top of a nearby hill. The other seven houses on the street still use dial-up, including one of the top executives (and original employees) of Adobe!
That has nothing to do with (de)regulation, just an anecdote. I mean, when you can't get broadband in the heart of internet country, its no wonder the US is so low on the list of broadband penetration. Now a good question is why do our cable and internet choices worse (and more expensive) than compared to Europe and South East Asia?
And, I've lived in 4 major cities in my life and I've never had more than 2 options for internet and cable and usually its a choice between one satellite company and one cable company. That's hardly perfect competition, not that I'm wishing for a return to the days of Ma Bell by any means.
Cactus is confused, but don't be so quick to claim your $100 fare as a win for free markets. Instead, thank the providers of capital to the airlines, together with anti-Schumpeterian bankruptcy laws, for your subsidy: cumulative return on investment since the Wright brothers is negative, and the US carriers go in and out of bankruptcy without having to reduce capacity. Oil prices may finally accomplish what our misguided policies have not. Now that it's open season on capitalism, it's doubly important to respond to half-baked paeans to regulation with precision.