Monopoly need not be a dirty word

snow leopard SG

I refer to Mr Charles Tans article Monopoly need not be a dirty word (Today, Sat, 28 July 2007) in which he describes our recent debate on the monopoly of NETs and Starhub as micro-arguments that misses the big picture.

Mr Tan reminded us of our small size to explain why we cannot have too many cable TV providers. He reasons that if the United States had one cable TV provider for every 4 million residents, theyd have about 70 such providers which they dont. This runs counter to evidence.

According to the the NCTA (National Cable and Telecommunications Association), there are 7090 cable systems in the US serving 65 million households. That works out to 109 cable systems per million households whereas Starhubs cable system currently serves 490,000 households. So clearly, on a per household basis, there are 50 times as many cable TV systems in the US as compared to Singapore.

Furthermore, a quick check at www.epinions.com shows us that Los Angeles, with a population of about 3.8 million, has 6 cable TV providers. San Diego, with a population of about 1.2 million, has 3 cable TV providers. So if we were to compare city to city, we find no substance in Mr Tans argument for Starhubs cable TV monopoly.

Mr Tan cited massive fixed costs as justification for a monopoly but NETs, having been established since 1986 has had more than 20 years to recoup any fixed costs it might have incurred. What more justification does it need for recouping fixed costs?

Mr Tan doesnt believe markets should be further distorted by government regulation but the purpose of government intervention is precisely to correct distortions and imperfections of the market.

Mr Tan makes use of the pharmaceutical industry as an example where it is important to protect a monopoly so as to encourage new discoveries and new inventions. But what new discovery or invention does NETs or Starhub represent? Both are creations of the west which are then transplanted here. NETs usage has not changed much for the last decade or so while Starhub is like a postman delivering content but not a creator of content itself.

Mr Tan warns us that if the government were to interfere with the business of NETs for example, the latter would stagnate in its technology and sink to the level of communist inefficiency. If that were true, then all our buses and trains must be languishing in communist inefficiency all this while. If the public transport council can decide the price of buses and trains, I dont see why a similar agency cannot oversee NETS charges.

Mr Tan argues that profit from monopoly will fuel R&D and pay good wages to researchers. Seriously, what significant R&D does NETs or Starhub endeavour in?

Mr Tan dissects the Starhub case as one of maintaining margins in the face of licensing fee hike for English Premiership football coverage. He may have dissected the case but he ended up throwing half of it away. Yes, part of the reason is that the EPL is asking for more money but the more important reason is the bidding war between Starhub and Singtel which resulted in Starhub paying a lot more than what the EPL had hoped for. So the crux of the issue isnt consumer demand far outstripping supply but rather there are two companies vying for sole coverage of EPL.

Just as there can be only one EPL, so too can there be only one Singapore. If the EPL wants to profit from the lucrative Singapore market, it can only approach Singapore. This is where government invervention could have helped. One way is that the government buys the rights to the EPL so that as a single entity it would have had better bargaining power over the EPL. The government can then sell these rights to either Starhub or Singtel or both. All would have benefited.

Mr Tan reasoned that the $10 increase in EPL charge is of no concern as the psychological trauma would wear off in no time. His is the sort of attitude that makes for good slaves, who sooner than later forgets the pain and is ready for more abuse.

Mr Tan borrows the term the law of small numbers to suggest that $15 to $25 is peanuts compared to $15 million to $25 million as though the average EPL viewer earns $15 million. He should have used the law of large numbers to show that $15 to $25 is a lot more painful than 15 cents to 25 cents.

Mr Tan asks why, if we were truly disadvantaged, doesnt the government act on our behalf against these monopolists? The problem is, both these monopolists are owned by the government, who is the ultimate monopolist. If anything extra incurred by Starhub is conveniently passed on to consumers, where is the pain and hence the incentive for the government to act?

Mr Tan believes that government intervention, apart from disincentivisation, would lead to arbitrariness of what can or cannot be. I wonder how the public transport council currently decides what can or cannot be and whether their decisions can be considered arbitrary. I also wonder how much of the public transport councils decision disincentivises the good operation of our bus companies.

Mr Tans suggestion of peer-to-peer Internet streaming of EPL may have legal implications.

One thing I would agree is that live EPL matches is a luxury, but we dont even have highlights the day after.