[opendtv] Re: Electric power as a natural monopoly

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Sun, 9 Feb 2014 07:57:08 -0500

On Feb 8, 2014, at 7:23 PM, Albert Manfredi <albert.e.manfredi@xxxxxxxxxx> 
> Craig Birkmaier wrote:
>> Not at all. The transmission lines are a shared resource.
> Finally. Therefore, this "shared resource" cannot compete against someone 
> else's infrastructure, and it becomes the natural monopoly.

You are trying to conflate different things. There are three essential elements 
in the electric power system.

1. Power generation
2. Municipality infrastructure - poles, lines, transformers and rights of way
3. The electric grid (I.e. Inter-system distribution)

#3 did not exist in the early days. The industry determined that there were 
many benefits to creating a power grid, as outlined in the Wiki article I 
quoted. So the grid was created as a pooled resource; everyone pays to use it. 
The Wiki article also stated:

> The more significant Electricity (Supply) Act of 1926 led to the setting up 
> of the National Grid. The Central Electricity Board standardised the nation's 
> electricity supply and established the first synchronised AC grid, running at 
> 132 kilovolts and 50 Hertz. This started operating as a national system, the 
> National Grid, in 1938.

Another article I found explains:

> Who owns the power grid? 
> The US power grid does not have one single owner - there are more than 520 
> owners of sections of the US power grid, including Federal Agencies, State 
> agencies, investor owned utilities, municipally owned utilities, cooperatives 
> and private, independent transmission providers.

So the National Grid is a shared resource, much like the Interstate highway 
system. You can call this a natural monopoly if you like...

But the logical natural monopoly is the local distribution system - it makes 
little sense to have multiple sets of poles and wires. Yet those poles also 
have other services that "attach" paying for the right to do so. The telcos 
started by attaching to the electric poles, however, over time much of the 
telco infrastructure went underground for reliability. Then cable attached to 
the poles. Now cable competes with the telcos for wireline service and both 
coax and twisted pairs carry our Internet bits.

Mark explained how you can have competition over the "natural monopoly" wires. 
You pay the company that owns the wires, and you choose a generation provider 
that you pay as well. 

This is not unlike what happens with MVPD TV service. Part of the bill covers 
the infrastructure and customer service organization. Another part pays for the 
the content (subscriber fees). And another part goes to local and state 
governments and the federal government (franchise fees, utility taxes and 
excise taxes).

I wrote:

>> So who is going to deliver the bits?
> An independent and neutral ISP. My Verizon ADSL ISP absolutely does not limit 
> me in what TV sites I can browse, and in what content these TV sites offer. I 
> thought you understood what net neutrality means.

These ISPs are not exactly neutral; they are ALSO in the MVPD business, which 
is one of the major reasons so many people are concerned about Network 
Neutrality. While the ISP does not limit what you can access, the content 
oligopoly DOES.

While the cable and telco ISPs are not likely to start blocking or throttling 
bandwidth to competing sites soon, they sure as he'll do not want the content 
owners to kill the content bundles. If the content owners allowed a new OTT 
MVPD service to offer channels ala carte, the entire system would fall apart.

The content congloms do not care how many middlemen they sell to. They have 
hundreds around the world. What they care about is that no middleman gets the 
ability to create a business model that undermines the others or the bundling 
cash cow.

> If ISPs get into the act of controlling Internet content, watch the FCC clamp 
> down on them.

It's not the ISPs you need to worry about. They already carry the current crop 
of OTT services you can access, and content that is delivered by the MVPD 
services that requires a MVPD subscription. At some point they will most likely 
carry one or more new MVPD OTT services that will operate walled gardens as 
well. Verizon may well be the first.

But don't look for the FCC to change the rules with respect to bundling; the 
Chairman was a lobbyist for both the cable and wireless industries, and he has 
been making statements about net neutrality that some groups find troublesome:

"I think that we're seeing the market evolve in such a way that there will be 
variations in pricing, there will be variations in service," Wheeler said. He 
then said that a "two-sided market" could develop, "Netflix might say, 'I'll 
pay in order to make sure that my subscriber might receive the best possible 
transmission of this movie.'"


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