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July 26, 2002

Competition Killed Telecoms

The Economist details the crash of the telecoms (may need password) and sums up the problem with a few basic numbers. In the last few years, between overbuilding and new technology, the telecoms deployed 100 times more capacity than demand increased. But here's the key passage:

"when digging up the ground and laying fibre, it makes sense to lay far more than is currently needed. If you are laying 24 strands, you may as well lay 240. The problem was not that individual firms laid too much fibre, but that there were so many firms building almost identical networks. In the United States, more than a dozen national fibre backbones were constructed; a similar duplication happened in Western Europe."
What this means is that for the future, it made sense for one company to lay lots of fiber (since it's cheap to lay the fibers once the ground's dug up), but it was insane to dig up the ground repeatedly.

This is as quick a summary of why telecoms are natural monopolies and why deregulation and competition is THE SOURCE of the present telecom meltdown.

Posted by Nathan at July 26, 2002 10:38 AM

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cf the Texas Railroad Commission's control of oil prices from the 1920s to the 1970's (when OPEC---an evil cartel, you understand, unlike the benign TRC---took over).

One more exhibit, of course, in the long line of exhibits showing that the hicks of Texas are nothing but hypocrites.

Posted by: Maynard Handley at July 26, 2002 08:07 PM

The George W Bush 2000 Stolen Election Commemorative Coin



Posted by: buckfush at July 29, 2002 07:05 AM

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