A Tale of Two Monopolists

Bill Gates never set out to become a monopolist, but telephone companies did.

Gates set out to control the base of the software pyramid, and for 20 years that was the desktop operating system. Telephone companies agreed near the turn of the last century to provide “universal service” in exchange for regulation as monopolies. Outside major cities, that deal remains intact.

When it comes to monopoly, in other words, the Bellheads have been playing far longer than Gates, and they’re better at it.

The confusion was exacerbated by the hype surrounding Gates’ latest project, Next Generation Windows Services architecture. Specifically, Gates was in Orlando Monday to trumpet a new version of BizTalk that creates XML tags based on flowcharting technology bought with Visio last fall.

By automating creation of the tags based on something businesses understand (business rules), Gates hopes to make them dependent on his vision for XML, and therefore on Windows.

But Microsoft has just 20 percent of the server market, and every previous attempt to drag Internet standards along a proprietary path (including Sun’s 100 percent Pure Java) has failed. On the Internet, standards are either universal or non-starters. As ZDNet’s PC Labs has already pointed out in a review, no one wants to sacrifice a big hunk of the market on a proprietary solution. Over time, XML parsers will all have to be standardized, or the standard won’t work.

While Microsoft can’t create new bottlenecks, phone companies can. That’s just what SBC is now doing with its “Project Pronto.”

Remember that DSL technology only works within five miles of your phone switch. SBC’s plan is to run fiber out to neighborhood call boxes and install DSL equipment there, putting nearly everyone inside the five-mile limit.

While SBC must let rivals inside its main switch centers, those centers won’t have copper after the new system is installed, and SBC won’t let rivals into the new neighborhood boxes. It says that if rivals want access, they must build their own boxes, or they can lease access to the boxes at prices set by SBC. But such boxes aren’t economic unless most of those connected are your customers. (If they’re not, you have empty boxes.)

It’s fiendishly clever, and it just might work, with Congress if not with the FCC. The chairman of the Senate telecommunications subcommittee (you may have heard of him) proposed to exempt phone monopolies from competition for extending broadband service to rural areas two years ago. The idea was that you can’t justify the investment without a guarantee, and without the guarantee, rural areas won’t get the investment. The SBC plan dovetails wonderfully with this.

When arguing for monopoly, moreover, phone companies talk only about deregulation. Here’s how U.S. West chairman Solomon Trujillo put it last year. “If Congress removes government regulation from the Internet, U.S. West would be able to deploy high-speed services to smaller communities and serve an additional 2 million households throughout our territory – a total of 77 percent of its customers.”

The obvious answer is to guarantee SBC’s rivals access to those neighborhood boxes at regulated rates. But that fight will take time to win, and meanwhile, SBC will simply refuse to invest in rural broadband, claiming “government regulation” is to blame.

So I don’t know if Bill Gates is still a monopolist, but if he is, he’s an amateur.

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