The following is an excerpt from The Innovator Versus the Collective
For seventy years, Americans were told that the AT&T monopoly was good for consumers, and as a result, competition in the telephone industry was prohibited. Yet, within a few years of legalized competition, consumers had far more choices and lower priced telephone service and equipment. Though the myth of natural monopoly theory was shattered in regard to telephone service, it continues in regard to electricity, and to a lesser extent, cable and Internet service. Just as consumers suffered for seventy years from the lack of freedom and competition under the telephone monopoly, consumers today suffer from the lack of freedom and competition in electricity, cable, and broadband service.
Natural monopoly theory is used to impede innovators from offering new services, and it prevents consumers from having choices regarding service providers.
Proponents of natural monopoly theory argue that the cost of building infrastructure gives incumbents a competitive advantage and discourages new entrants into a market. But actual experience belies this claim. We have seen numerous examples of businesses investing enormous sums of money to develop a market. Telephone companies, cable companies, and biotechnology companies are but a few examples.
Businesses willingly invest when they believe they can profit. But the ever changing regulatory environment makes it difficult, and sometimes impossible, for a company to plan. For example, in 2014 AT&T postponed plans to install fiber optic cables in one hundred cities due to uncertainty over net neutrality legislation that was pending at the time. In explaining the company’s decision, AT&T Chief Executive Officer Randall Stephenson said, “We can’t go out and invest that kind of money deploying fiber to 100 cities not knowing under what rules those investments will be governed.” Based on its judgment of what consumers wanted and were willing to pay for, AT&T was willing to invest millions of dollars in fiber optic. But when the company could not judge the ever changing policies of government officials, it regarded the project as too risky. As a result, consumers did not get the benefits of an enhanced service.
We have seen that utility regulators attempt to mimic a competitive market through their policies and rulings. But mimicking competition is not the same as actual competition. A truly competitive market is possible only when innovators are free to offer the products and services that they choose. Competition is a dynamic process, with innovators continually developing and marketing new products and services based on their judgment of the marketplace. But government regulations force the innovators to consider more than the marketplace; the innovators must also judge whether bureaucrats will allow them to act. And, as AT&T showed with its decision to suspend investment in fiber optic, they sometimes judge it safer to refrain from acting.
It’s not enough to simply reject the idea of natural monopolies. We must present a positive alternative, and that alternative is property rights.