Let me disagree a bit by saying that I don't accept that current
telecommunications, and therefore Internet access, is provided under
market rules.

The last mile of connection to the vast majority of homes in the US was
installed when the telephone company was a monopoly.  (The Phoenix area
may be an exception to that with all the growth we have had.)  So each
house has one connection (multiple lines are part of the same one
connection) to the telephone network.  In August 2005 the FCC ruled that
DSL is an "information service" instead of a "telecommunications
service" with the effect that the incumbent telephone companies can
charge whatever they want to competing DSL resellers for access to that
connection[1].

So, even though my home DSL is provided by Covad, it really is owned by
QWest.  And even though my ISP is Earthlink and I could chose many other
ISPs, I cannot find pricing of the ISP combined with the DSL connection
that meets or beats QWest's ISP and DSL pricing.  QWest controls the
price that any competitor must charge by controlling the price the
competitor must pay to get through that connection.

So we are left with, really, only two possible inexpensive providers in
this area: QWest or Cable.  And cable is a municipal government granted
monopoly.  That is not a free market at all.

Now, for a change of pace, a completely hypothetical question:

According to Yahoo Finance the market capitalization of QWest is $18.99
billion[2].  And if I may be so off-the-wall to make such an
apples-to-oranges comparison, Bill Gate's net worth is reported to be
$27.93 billion[3].

Using this completely bogus comparison of financial capability, I ask
these questions:

If Bill wanted to spend a significant portion of his riches to build a
second telephone network in the Phoenix area, laying his own fiber and
copper connections to every house along side the current wiring, would
he be able to do so?

He appears to have enough money since he has more value than QWest and
would only be serving the Phoenix area and not in 14 US states like
QWest does[4].  If he would not be able to do so then the barrier to
entry is the result of something other than the operation of a free
market.  In a completely free market the only cost to entry is cost of
providing the good or service.

I don't think anyone would be able to successfully install a completely
separate competing connection infrastructure at any price because
non-market forces in the form of government regulation would prevent it.

I agree that the free market is the best way to find the most efficient
method of producing goods and services, by far.  However, the current
telecommunications market is NOT a free market and does not operate by
free market rules.  When telecommunications executives or politicians
speak of maintaining the status quo or increasing incumbent control as
"letting the free market solve the problem" they are being disingenuous,
in my opinion.

Alan

[1]http://www.techdirt.com/articles/20050805/1029253.shtml
[2]http://finance.yahoo.com/q?s=Q
[3]http://evan.snew.com/ecgi/gates.cgi
[4]http://stocks.us.reuters.com/stocks/fullDescription.asp?rpc=66&symbol=Q

Bryan O'Neal wrote:
> Yes, basic market rules say if there is money to be made people move in
> to make money.  No one will enter a market if there is no demand for the
> product or service, or the demand is not high enough to make a profit. 
> Arbitrage rules say that if the product or service can be given with a
> lower cost (thus higher profit) by a competitor or a competitor has
> greater tolerance to a thinner margin then the competitor will enter the
> market.  If there is competition in the market place and excess demand
> is not met, then the supply goes up and the price goes down.  If the
> price goes down a new supply/demand intersection is reached with a
> greater demand and supply.  The longer this goes on with excess demand
> (thus a larger initial price and no steep price point steps) then the
> lower the final price will be. In other words the first person in the
> filed has a high barrier to entry, and unless there is a payback they
> will not enter.  The larger the payback and the greater the demand the
> more people who are willing to cross that barrier for a piece of the
> action. As more people enter the field two things happen, the barriers
> become lower and the competition (supply) becomes greater, thus if you
> follow the demand curve the price drops.  There are endless examples,
> but since we are on the subject, let us look at cell phones.  The
> original cell phones weighed a few pounds and were the size of bricks,
> only a few carriers (AT&T) had them and fewer people (Motorola) created
> them.  If only a few very few people were interested in them we would
> not be as far as we are in cell phone tech.  However many people wanted
> them and were willing to pay outrageous prices for them, infrastructure
> was built to handle them and to build them.  People poured money into
> R&D to make them cheaper so their profit would be greater (Since
> competition was driving down the price) this allowed them to drop the
> price more and offer better product thus capturing more market at the
> same or better margins and creating greater profit, and others followed,
> thus the game cycles it’s self through until you arrive at were we are
> now.  The reason people in Japan have more features is because they
> demand it and are willing to pay for it.  We (as an economic collective)
> are not.
> 
>  
> 
> As far as regulation, there are two reasons for it.  To provide
> protectionist incentives to the first entries into market (thus ensuring
> they can pay back their initial investment) and two protect the public
> at large (need I remind people of thalidomide).  Then you have
> incentives, and no one can dispute the effects of projects like the
> Tennessee Valley Rive Authority.  However the political question becomes
> when you can eliminate the protectionist aspects of an industry.  For
> the most part the Telecom industry has had their protectionist
> incentives removed (save the most basic nature of the regional Telco
> structure) and what has not been removed is being phased out.  However,
> we are now in the midst of the imposition of additional protectionist
> schemes (Ted Stevens fight agents net neutrality).  And yes, your
> argument was better then the typical winning I hear, but I hear so much
> of it I sometimes lump it all together when I should not.  But I stand
> firm that all things cost, there is no such thing a free lunch, there
> are unlimited desires and limited resources to fill those desires, and
> that a free market driven economy is the best way to distribute those
> resources.