June 27, 1997
The Rape of the Middle Class
I once had my head bitten off for stating that the cable and telephone companies are raping the American middle class. Now the only response I get is "Duh!" In the larger cities you may have a choice between one or two telcos and cable companies. In my city there is one phone company and one cable company. If I don't like my phone rates, the only alternative I have is to not have a phone. If I don't like cable, I can spend the outrageous amount for satellite television. In my city, they are monopolies (one seller and entrance to the market is blocked). In larger cities there may be a few of each (Oligopolistic). Either way there is little or no competition. This has three severe reprecussions for the consumers. First, we have to pay what they tell us to. Second, no competition means that there are no incentives on the suppliers' end to innovate, lower prices or provide additional services. Third, no competition means really poor service.
Don't believe me? Well let me ask you this. What happened to those 500 channels the cable companies promised us back in 1994? I don't have 500 channels, do you? What about the Telecommunications Act (you can read a brief summary of what was supposed to happen by clicking following the link) you ask? This legislation was to increase competition in the telco and cable industry and therefore lower costs. Well, since the legislation was passed and became a law, local telephone service charges have increased, long distance charges have increased, and cable rates are climbing. That law worked!
Then we have the baby bells crying to the FCC about the lost revenues from data traffic on their precious phone lines. They want to be able to charge per minute long distance to the ISPs, who will then pass the rates on to the consumer. If this happens Bill Gates won't be able to afford an Internet subscription. Am I missing something here? Aren't the telcos making money by installing secondary lines to homes who subscribe to the Internet? And isn't this the direct result of Internet access being offered for flat fee? Who will put in (or keep an existing) second or third phone line for their computers if they have to pay per minute for Internet usage?
It must be nice to run a business where: You don't have to listen to your customers, you can charge them whatever you want, and provide them with third rate service.
While this discussion isn't as important (at least from an economic point of view) as wars, poverty, and oppression, I contend that it is a viable argument. Monopolies have been using their excess economic returns to lobby Congress on their on behalf. It's not just happening in the States, it's going on all over the world (even more so in the developing nations such as Colombia and China). The profits earned by these Monopolies are "artificial". In an open market the consumer would be able to choose between similar products, prices would be lower, quality higher, and the consumers would be the one's with the additional funds. Competition is, perhaps, the most important element behind a successful market. This has been known ever since Adam Smith wrote the Wealth of Nations in 1776. Yet somehow, all over the world, governments choose to ignore this.
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