Path: utzoo!telecom-request Date: Sun, 9 Jun 91 14:06:14 EDT From: andys@ulysses.att.com Newsgroups: comp.dcom.telecom Subject: Re: Hollings and Pac*Bell Message-ID: Organization: AT&T Bell Laboratories, Murray Hill Sender: Telecom@eecs.nwu.edu Approved: Telecom@eecs.nwu.edu X-Submissions-To: telecom@eecs.nwu.edu X-Administrivia-To: telecom-request@eecs.nwu.edu X-Telecom-Digest: Volume 11, Issue 442, Message 1 of 5 Lines: 121 In article Charlie Mingo writes: > In a recent posting, John Higdon attacks Pac*Bell's new voicemail > service, because it is priced "well below" that of Pac*Bell's > competitors, and because it offers features which the local telephone > company is uniquely capable of providing. He claims that this is part > of a strategy of "predatory pric[ing] designed to murder the > competition," and argues that Pac*Bell's voicemail service offers "a > glimpse of the future under the Hollings bill" (which would permit > RBOC's to manufacture telephone equipment) and goes on to call for the > bill to be defeated in the House. Although I take no position on the > Hollings bill itself, it sounds perverse to me to attack a company for > offering quality service at a low price. That isn't what he attacked them for. He attacked them for a) using their regulated business to subsidize unregulated business b) using their position as a regulated monopoly to provide unregulated services that were unavailable to their competitors. > It must be remembered that antitrust law generally (and the Bell > divestiture in particular) was designed to benefit *consumers* not > competitors. Interesting mythology. Where did you find it? I've seen no evidence that government intentions regards antitrust law in general or in US vs AT&T in particular have anything whatsoever to do with consumers. The Sherman antitrust act was enacted to prevent anticompetitive behavior by large monopolies for the express purpose of keeping smaller less efficient competitors from being driven out of business. I've not seen anybody claim that US vs. AT&T was undertaken to protect consumers. The question was whether AT&Ts monopoly position in providing local phone service made it an unfair competitor in the long distance, manufacturing, and enhanced service businesses. Consumers were at best a tertiary concern in that courtroom. From what John describes, if the government's concerns were valid in 1984 then they are valid now. We have seen ample evidence that the RBOCs are capable of abusing a captive relationship between supplier and customer to either undercut competition or drive up the price to consumers of monopoly services. (The NYNEX case comes to mind, among others). > "Predatory pricing," for example, is defined as selling > a product *below the cost of production* for the purpose of eventually > monopolizing a market. Mr. Higdon provides no evidence that Pac*Bell > has priced its voicemail service below the cost of providing it; on > the contrary, he himself shows that Pac*Bell's size and credit rating > give it easier access to capital, which lowers its cost of providing > the service. This is a natural advantage which large, established > companies have over smaller ones; pricing one's goods to reflect one's > lower cost structure is neither anticompetative nor "unfair." It is not Pac*Bel's size and credit rating that gives it an advantage. It is its unique position as the owner of the network that enables the service. Nobody else can forward your calls for free, because nobody else is the phone company. Nobody else can make your dial tone stutter because nobody else owns the switch. > Mr. Higdon also writes that "[w]hen the field has been thinned out > sufficiently, then the price can be whatever [Pac*Bell] wants." It > should be clear that Pac*Bell cannot raise the price of voicemail in > the future above what independent providers currently charge, without > allowing the competition to reestablish itself. Given this > limitation, any such "predatory pricing" strategy would be decidedly > unprofitable. This is precisely the type of abuse that the antitrust laws were written to deal with. In real practice, rather than in Capitalist Theory 101, once competition has been driven out through artificially low prices, that the marketplace is much slower to respond to price increases from the predator. People can't jump back in the business -- they've gone bankrupt. > Likewise, his argument that Pac*Bell should be prevented from > offering voicemail, because it alone is in a technical position to > provide special services (such as "stutter" dialtone and free call > forwarding), is similarly flawed. Consumers would not be better off by > making these desirable features unavailable merely to protect > inefficient competition. *INEFFICIENT* competition? It is not the fault of other providers that they are not the local phone company. That franchise was awarded to Pac*Bel's predecessors long before there was voice mail. This is a classic case of what the antitrust lawyers and the FCC have called cross-subsidy. Pac*Bel's position as the provider of local phone services, *AS A MONOPOLY PROVIDER UNDER GOVERNMENT REGULATION*, is being abused to subsidize non-regulated business. The governement has handed Pac*Bel a juicy 12% guaranteed rate of return on service for which it has no competition. Let is go compete fairly in other arenas. > (Of course, if it is possible to extend these > feature to competitors' services, Pac*Bell should be required to.) > The key concept here should be service to consumers, and not > "fairness" to competitors. I see. People get financing, take jobs, quit jobs, start businesses, extend credit, use credit, all on the assumption that they are entering a level market place. The marketplace is not level when one competitor can muscle in on the strength of a government sanctioned monopoly. Is that fair to the creditors, investors, and employees? Are they not worthy of the same consideration as "consumers"? Pac*Bel *could* find a way to tariff services in such a way as to make for fair competition. A) It *MUST* offer the same arrangements for local forwarding and dial tone modification to all comers who are willing to use appropriate voice mail technology B) Its voicemail subsidiary *MUST* properly pay its phone company subsidiary a fair and reasonable market rate for network based services that a competitor would have to pay for. Ultimately, nothing else would be fair to either competitors or consumers. I agree with John Higdon. This is an ominous precursor of what we can expect from the post-Hollings RBOCs. Andy Sherman/AT&T Bell Laboratories/Murray Hill, NJ AUDIBLE: (908) 582-5928 READABLE: andys@ulysses.att.com or att!ulysses!andys What? Me speak for AT&T? You must be joking!