Connect us to the past
- This column was first published in ITWeb Brainstorm, a South African business technology magazine, on 1 July 2007. They pay me for this stuff, so you’d do me a great service if you’d consider subscribing.
This wasn’t intended as a column extolling the virtues of reading history. Yet if only Poison Ivy1 would do so, she might actually “connect us to the future”, to use her words.
There she goes again. After eight years in office, and all those nice things they said about encouraging competition, technology neutrality and managing liberalisation, minister Ivy Matsepe-Casaburri is proposing to drive us up another dead end.
“I have taken the policy decision,” she dictated in her Department of Communications budget speech, “that Mobile Broadcasting Services will be provided on a single network with national coverage, using the DVB-H standard. The network … will be operated on the basis of open and non-discriminatory access principles.”
She’s proposing yet another monopoly, presumably to be run by government, and limited to a single choice of technology. Oh yay!
True, multiple standards can cause difficulties. Companies might gamble on the wrong one, or consumers may have to change from one to the other. However, why would the honourable sociology prof in charge of telecoms have even the foggiest clue which technology to choose?
Digital Mobile Broadcasting (DMB) is a major competitor to Digital Video Broadcasting – Handheld (DVB-H), the snappy name of Poison Ivy’s preferred technology. It does appear as though DVB-H has a slight market advantage, but the same was once true for Betamax. What will Ivy do if DMB proves to be better and cheaper and nobody makes DVB-H equipment anymore? Rip-and-replace the lovely monopoly network? Thought not. We’d be screwed.
TDtv is a technology launched recently to provide mobile broadcasting facilities over existing 3G networks. It apparently has spectrum use advantages, and analysts believe it could prove to be cheaper than DVB-H. Will we get that choice? Will we have smart engineers at competing companies trying to outdo each other to offer consumers the cheapest service, using the most efficient technology? Haha. When last did we get that in telecoms?
Ivy also seems to labour under the misconception that building multiple networks is an inefficient waste of capital. But say you have one railway line between Johannesburg and Cape Town. Is that cheaper than having two railway lines? Actually, no. Having two lines is cheaper, because it isn’t about who risks their private capital. It’s about the people who use the railway service. With two competing lines, tickets will cost the same or less than tickets on a single line. See? Cheaper.
Same goes here. Multiple competing networks will result in competition. Some of them will fail, or bought by successful ones, but since it’s private capital that’s at risk, that’s not the government’s problem, nor is it our problem as customers. That’s what entrepreneurs do. Eventually, the winners will survive, but not after having eked out every bit of cost-saving and performance they can get. This is true even if the market eventually consolidates to a single dominant network.
Finally, the idea of “open and non-discriminatory access” is based on the notion that the best possible price for a service consist of cost plus some “fair” profit margin (whatever your idea of “fair” is). This is wrong. Profit is not a right, it needs to be earned. Legislating cost-plus prices leaves absolutely no incentive to reduce costs, since profit is guaranteed.
What the minister doesn’t know is that price is determined by what buyers are prepared to pay. Given the price the market will bear, a potential supplier has to weigh up whether or not it can profitably provide the service. Cost does not determine price; it determines whether or not the service will be provided at all, at a given price. Worse, if the price cannot change according to what the market is prepared to pay, supply won’t change to meet demand.
This false picture of production leads to false conclusions. Such as that there’s nothing wrong with a a legislated monopoly subject to price controls. Such as that the govenrment can regulate profit margins to control either affordability or profitability (depending on which special interest group it’s trying to benefit). In fact, this determines only whether or not – and how much of – something gets supplied.
No wonder sociology professors act all surprised when we see shortages and failures and delays and the most inefficient mobile broadcasting in the world. They don’t understand economics and don’t learn from history. They just don’t get it.
- Ivy Matsepe-Casaburri, South Africa’s minister of communications. [↩]
