A PS on the great telecoms debate. Vodafone, which gave Scott Wickstein a ‘wicked good deal’ a while back, just *raised* its price for SMS messages by13 percent, mtching Telstra and Optus.

As an aside, SMS must be about the worst value in telecommunications history, in terms of cost per unit of info. As I understand it, the typical message contains less than 25 characters, and costs 25 cents, i.e. 1 cent per byte. A typical ISP will offer a $30/month service with a limit of 300MB. I make the price ratio 100 000 to 1.

Or you could compare voice telephony at, say 20Khz, which is 2.5Kb/sec. At SMS prices, a 1 minute telephone call would cost $1500.

Despite what Scott says, I’m not quite old enough to remember the days of Morse code. But I’d be willing to bet that, at least in nominal terms, even telegrams were cheaper than SMS.

Mickey Kaus tries to bluster his way past the fact that, after six years of apparently successful welfare ‘reform’,Welfare Rolls are On the Rise Again . Of course the real problem is that the rise in recipient numbers hasn’t kept pace with the rise in unemployment, suggesting a lot of families with no (legal) income at all.

Holy Joe Lieberman, point man in Congress for the Big Five (make that Four) accounting firms, still claims that stock options are The Best Way to Spread the Wealth. And Congress apparently agrees, thanks to some massive corporate donations. The US is looking more and more like Japan in the early 90s. The bubble has burst, but the corrupt practices that went with it are alive and well.

The Wind’s Twelve Quarters by Ursula Le Guin. I really like this kind of SF, but it’s drowned in sea of sword, sorcery and space opera these days. If anyone knows of anyone recent who’s comparable to Le Guin, please let me know.

Scott Wickstein comes back for another round on natural monopoly in telecommunications, saying :

“So why was it that phone prices fell with the introduction of competition? I know I’m not an economist, however, I do know something about phone bills. ”

Something, but not enough. For example, Scott is apparently unaware that:
(i) on average, the real cost of phone calls has fallen by about 5 per cent per year, for the last fifty years at least, under both monopoly and ‘competition’
(ii) Telstra’s prices are determined not by market forces but by a regulatory price cap requiring the same average rate of price reduction that prevailed under the Telecom Australia monopoly
(iii) In most years, Telstra has met the price cap exactly. That is, it has reduced average real prices by the minimum amount required by law.

Jason Soon also has some comments. He says, correctly, that economists have disagreed about whether telecommunications is a natural monopoly. However, this is an issue on which market outcomes speak louder than econometric studies. For example, Business Week, scarcely a leftwing source, observesIt’s “Merge, Buy, or Die” in Telecomand predicts a US industry dominated by two or three regional monopolies.

Jason also makes some hasty assumptions about my position (and Ken Davidson’s) on these issues.

I analysed the issues and policy options at length in an Agenda article entitled The premature burial of natural monopoly: Telecommunications reform in Australia My conclusion was that
“Much of the potential benefit to be derived from reform of the telecommunications industry has been dissipated in wasteful and technically unnecessary investment in duplicate networks. This is the natural result of policies based on a naive enthusiasm for competition and wishful thinking about the death of natural monopoly.”
I expanded on this point in a rejoinder to comments by Rod Maddock
But this does not, as I observe, rule out options like an access pricing regime or even a breakup of Telstra, something which I have advocated as a route to renationalisation of the core network..

Scott Wickstein is unhappy with me for saying that telecommunications is a natural monopoly industry. Scott disliked the old Telecom and prefers competition. The problem is that ‘natural monopoly’ is a technological fact, not a statement about preferences. An industry is a natural monopoly if its services can be delivered most cheaply by a single firm.
To be fair to Scott, who regularly reminds us that he is not an economist, the same mistake has been made by people who ought to know better. The idea that competition can be wished into existence has been the source of most of the silly policies that we have seen in the last decade, policies that are now sending telecoms broke on a daily basis.

Paul Krugman had a piece a while ago saying that a colleague had asked him to write something positive about George Bush, in the interests of fairness, but he couldn’t think of anything. The colleague suggested Bush’s support for free trade, but shortly after that Bush slapped tariffs on imported steel, so Krugman wrote about that.

Always eager to emulate Paul Krugman, I thought about the challenge. It struck me that there was something positive about Bush – he seemed to be genuinely non-racist, and had not gone after racist votes. The contrast with Australian and European rightwing politicians (and many alleged leftwingers) was, I thought, striking.

All this was in my piece in Thursday’s Financial Review. Unfortunately, you need a subscription to read it on the AFR site, but it will be on my site soon.

Ken Davidson is spot-on regarding Telstra. Bob McMullan makes some interesting points, but fails to recognise that the era of competition in telecommunications is basically over. Any sensible policy must take account of the natural monopoly characteristics of the industry. Meanwhile, the Oz continues mindless cheerleading for privatisation.

This piece from the Guardian beat me to the punch. The idea that America is “the worlds only economic and military superpower”, and can therefore do what it likes, belongs with the rest of the rhetoric of the bubble era. Like all societies, the US has finite resources.

Kevin Phillips (‘of ‘Emerging Republican Majority’ fame) has an interesting piece onThe Cycles of Financial Scandal