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Re: Another Point Of View (Round 2)

  At 09:23 AM 12/4/96 -0500, Bill Frezza wrote:
  >At 8:01 PM -0500 12/3/96, James Love wrote:
  >>Oh, one more thing.   In game theoretic models, it is the expected
  >>prices after entry when are important... not the prices before entry.
  >Tell that to all the lunatics that bid $40 a pop for PCS licenses. There is
  >no question that the consumer is going to be the big winner here as half a
  >dozen network providers beat each other's brains out for business. Had we
  >taken your approach, say using regulators to force the cellular duopolists
  >to reduce their prices to some "fair" level, the results would have been
  >entirely different.
  A straw horse being beaten, of course.  We are *not* arguing for a regulated
  duopoly to the exclusion of new entrants.  We are saying that in the case of
  the wireline industry, which in this sector is a pure monopoly, regulation
  is necessary unless/until real competition shows up.  The mobile phone
  market is farther along towards a true competition model already, so the
  same regulatory regime would not be appropriate.
  In practice, though, the example tends to prove the counter-point.  The
  FCC's auction mentality led to a bidding up of the price of spectrum based
  on the price charged for cellular telephony today.  Given that lunatics did
  pay $40 a pop, they're not about to set up low-cost high-bandwidth digital
  fixed networks to compete with wireline.  For one thing, spectrum cost is
  *truly* usage-sensitive, as spectrum is consumed by *using* the radio, not
  *owning* one.  (Wireline phones, on the other hand, have the vast majority
  of their costs in the non-traffic-sensitive arena.)  For another, 20 cents a
  minute sounds cheap compared to analog cellular, but outrageous compared
  even to Bell Atlantic's wireline ISDN rates.  What market would you compete
  in if you paid that much for a sliver of spectrum?
  Had the FCC wanted real wireless competition for wireline, they'd have
  authorized larger chunks of spectrum and parceled them out differently.
  But this is not the list to debate spectrum management.
  Fred R. Goldstein      fgoldstein@bbn.com  
  BBN Corp.              Cambridge MA  USA    +1 617 873 3850