Lafayette Fiber Advocacy Argument

[Click on any link for an expansion of the point.]

Water service serves as a commonsense example of why natural monopoly services are best offered to consumers as municipal utilities.

(Origination: "Private or Public" page.)

Water service, almost universally a municipal service, is a good example of how natural monopolies work.

Suppose there were two water systems in Lafayette, each with its own wells, pipes, pumps, repair facilities, and billing system. Each system's costs to provide service would be approximately the same—and approximately the same as they would be if the other company did not exist. If each company had exactly half of the market, each half of the market would have to bear the full cost of a complete system. Each purchaser would have pay twice what he or she would pay if only one company existed. This is why you will never find more than one water company serving an area.

But in the real world, each company would not have exactly the same expenses or the same number of customers. One company would have an advantage, a small one initially, but one which in the end would ensure that only one company would survive. A company that had just a few more customers than its competitor could offer a small discount and still make the same profit as its competitor. If a few people switched over it could make its discount still larger. In the end the first company to get a small advantage would run the other company out business.

And, at least initially, the customers would all benefit – they would be able to get the service for half of what it cost before. But, of course, once the water service became a simple monopoly it would have little incentive to keep prices low or run the company efficiently. More importantly, much of the pressure to provide universal service and to make sure the water is clean and pure would go away when the customers are left with no choice. This is why natural monopolies usually lead to either regulation or, as an alternate way to assure public oversight, to municipal ownership. There is a good, rational reason why water is almost always a municipal service.

Much of the same logic applies to fiber optic networks. The analogy is not absolute, but this much is true: there will be only one. Lafayette’s fiber optic network will be a monopoly.

And if we are concerned that the service be affordable, universal, and responsive to public needs it is sensible to prefer that the agency offering it be a public utility.

|Back|