[12756] in Commercialization & Privatization of the Internet
Monopoly, competition, and subsidies
daemon@ATHENA.MIT.EDU (Marvin Sirbu)
Sat May 28 00:56:17 1994
Date: Fri, 27 May 1994 22:05:51 -0400 (EDT)
From: Marvin Sirbu <ms6b+@andrew.cmu.edu>
To: com-priv@psi.com, draperk@io.com (Draper Kauffman)
In-Reply-To: <199405270644.BAA26258@illuminati.io.com>
The Constitution authorizes the Congress to establish a Post Office in
order "to bind the nation together". To meet that objective, the postal
service subsidizes mail for people in rural areas, by charging above
cost to deliver mail in urban areas. When you're a monopoly, you can
meet the public service demand through internal cross-subsidy.
In the U.S., the majority believes that even poor people are entitled to
minimal health care. Health care, however, is provided on a competitive
basis. When there is competition, it is difficult to charge one group
over cost in order to subsidize another group (the groups may be the
young and healthy versus the older and chronically ill, or the wealthy
versus the poor). New providers can enter the market, charging only a
little over cost to serve those who are cheap to serve, and eliminate
the surpluses that were going to subsidize the other group.
Consequently, in this country, in order to provide health care to the
poor, or to the elderly who are more costly to serve (just like rural
postal customers) we do it by using general tax revenues or a special
health tax (e.g. medicare) to provide the necessary subsidies.
We also provide direct cash support of schools and libraries, part of
which goes to buy health care for their employees or for students.
Most of the country is not in favor of operating health care as a giant
regional or national monopoly with internal cross subsidies. They see
the benefits of competition as a means of keeping costs down and
providing choice to consumers.
While local exchange service is provided on a monopoly basis, it has
been public policy to support the poor and rural users by internal
subsidies within the telephone monopoly. Rate averaging, separations
and settlements, access charges.
As local exchange service becomes comeptitive, if, as a matter of public
policy we wish to continue to support access to telecommunications by
the poor, or those whom it is costly to serve, it will have to be
through explicit tax revenues that go either to support individuals
directly -- a communications equivalent for rural areas of medicare for
"high cost" elderly sick people; or, through cash to various publicly
supported institutions --schools, libraries--to insure that they have
resources to buy communications for their employees and beneficiaries --
students, patrons.
Currently we are having a hard time in this country trying to decide to
what extent the government should make health insurance universally
available, and what is the "minimal" set of entitlements to health care
that the very poor should receive. It is a highly charged political
issue. The vast majority of the population, however, is not in favor of
simply ignoring poor people and letting them get sick and die simply
because the poor have no money for health care.
Similarly, we will have a hard time in this country trying to decide to
what extent the govenmnet should make "basic" communications services
universally available, and what is the minimal set of "basic" services
that the very poor, or the costly-to-serve are entitled to. It is a
highly charged political issue. The vast majority of the population,
however, is not in favor of ignoring poor or rural people and letting
them die for lack of emergency communications, or let them remain
ignorant for lack of access to the knowledge from networks.
>From where I sit, EFF has done a pretty good job of understanding the
differences between the way things happen in monopoly markets and in
competitive markets. Moreover, they have made it clear that they prefer
to see IP services, and local exchange telecommunications services
provided on a competitive basis. That will keep costs down and provide
choice. However, competition alone will not insure that persons in high
cost areas or the poor have access to "basic" telecommunications. They
advocate competition among suppliers and explicit subsidies to users
rather than the current, postal service-like model of monopoly provision
and internal cross subsidies.
They also recognize that a model which calls for competition and no
subsidies to anyone will not provide what the majority of the society
has deemed the minimal acceptable service to the poorest of the poor, or
even the average person living on a farm or other costly-to-serve
location.
Marvin Sirbu
