The Potemkin Monopoly

The sudden success of Verizon yesterday, which had its business services disconnected from FCC regulation at a stroke, has many of my fellow analysts crying very hard. (That's the old MGM backlot, circa 1976, from seeing-stars.com.)

This is not a surprise. People who have studied and lived with regulation for years, who see it as the only protection against a vast legalized monopoly, are rightly despondent that just such a monopoly has been granted.

But has it? Perhaps something I wrote earlier today deserves repeating. This order isn't really about raising prices. It's about cutting them.

Most large companies and organizations long-ago left the Bells and developed their own networks. The networks are fast, they're Internet-based, they're written-off over a very short time horizon. They are considered differentiators by their owners -- my network is better, faster, cheaper, than your network and that's why I win.

Verizon badly wants to get into this business. But as long as it was tightly regulated it had no chance. Now that the regulation is gone, it can compete more directly with IBM, with EDS, and with internal corporate efforts. It can do special deals, cut prices to the bone, and keep that information secret from the public.

The hope is that Verizon can milk its monopoly customers for everything they can get -- long one-sided cell contracts, DSL price increases, long-distance calling plans, and shakedowns of big content providers -- so that it make up that revenue it is going to lose in the business market.

That's a long shot. Cities are now seeing the benefits in running municipal Wi-Fi clouds in competition with the Bells. Consumers have been conditioned to use technology and route around monopoly, and to distrust the Bells. Political risks remain -- the Bells are so tied-into the Republican party that a Democratic majority is a real threat.

The monopoly the Bells appear to have is a false front, it's  a Potemkin Monopoly, no more real than those old Hollywood sets.

Moore's Law has not been repealed. New gear, quickly written-off, still delivers better service for less than Verizon can, when its costs are taken into account. Remember, it doesn't just have to pay for gear, but for people, for health care, for pensions.  (It actually advertises these costs.) It also has to deliver rising returns or its stock collapses.

History is still against them.