Two Monopolies Are Not Better Than One

It’s an old vision--actually from the 1970s--of cable and telephone companies competing with each other, with each providing the same bundle of integrated services, including voice, data and video. AT&T; clearly believes in it and is actively acquiring cable companies. But just how real is this vision?

Local telephone and cable companies are monopolies, and the thought of two monopolies competing with each other is enticing to contemplate. But even if such competition were to occur, and there is ample reason for considerable uncertainty and doubt, are two monopolies better than one?

Local telephone companies have monopolistic control of local access over their copper wires. But local telephone companies have no control whatsoever over the content of the communications transmitted over their wires. They are common carriers, in the sense that they carry all telephone conversations without controlling them in any way.

Cable television companies have monopolistic control not only of the coaxial cable but also of the selection and content of the television programming transmitted over their cables. They are not common carriers. They control both the conduit and the content.

In terms of monopolies, if local telephone companies are evil, then cable companies are evil squared, since they control everything. Can cable companies be trusted to provide telephone service--a common carrier type of service--without their attempting to control content, as they do with television programming? Should not cable companies be required to open their coaxial cables to all video entertainment providers on an equal basis before being allowed into the telephone business?

History justifies skepticism toward the vision of competition between cable and telephone companies. In a past pursuit of the vision of convergence and competition, many local telephone companies became involved in the provision of video to homes. GTE offered video in Cerritos, Calif.; US West purchased Continental Cable and also became a quarter-owner of Time Warner Entertainment; Bell Atlantic almost purchased TCI but actually offered switched video (video through phone lines) in Dover Township, N.J.

The local telephone companies became so convinced that their future was in video entertainment that they formed partnerships with such firms as Disney and Creative Artists, ventures that have since gone sour and been dissolved. Other than outright ownership of cable companies, the attempts by the local telephone companies to create a new switched-video broadband infrastructure have been flops. The local telephone companies now know that switched video is far too complex and costly. Their vision of being providers of video is dead.

And now AT&T; has purchased two cable companies--TCI and MediaOne--in pursuit of its vision of providing telephone service over the coaxial lines of cable television. With these two acquisitions, AT&T; will become the largest supplier of cable television in the United States, with direct control of 16 million subscribers and their cable available to 26.5 million homes. But these two costly acquisitions will cut AT&T;’s net income of nearly $5 billion in half, all in the belief that AT&T; will discover the way to deliver telephone service profitably over coaxial cables, thereby bypassing the local telephone companies and making real the decades-old vision of local competition. Will AT&T;’s vision of providing telephone service over coaxial cables suffer a fate similar to the past vision of the telephone companies for providing switched video?

All this clearly is a very risky undertaking, and much faith is needed to believe that competition between telephone and cable companies will ever become reality. AT&T; is betting its financial future on cable. If history is any prologue to the future, AT&T; will lose.