RATE UNBUNDLING: ARE WE THERE YET?
FEBRUARY 15, 1996
Now, in the age of deregulation and competition, mergers are proposed on every side (em ostensibly to reduce costs and to fortify the participants for competition. This new strength will derive, it is said, from eliminating duplication. This dreaded "duplication," in most cases, seems to mean duplicate people (em an affliction easily cured with pink slips. That remedy poses no concern for any except those who have been duplicated. The remedy for duplicate CEOs is a bit more dicey.
No modern vision would be complete without some plaything for speculators that provide honest work for brokers. Why not match futures and options in electric power with straddles in natural gas? As pork bellies slowly fade, juice can fill the void. Too bad Insull isn't here for this development! A mutual fund would be just the ticket.
In the old days, no one saw much reason why a monopoly should need to advertise its wares to captive customers. Advertising costs were disallowed. Now marketing strategies for the competitive successors of regulated monopolies call for huge advertising campaigns. Evidence can be found in the long-distance telephone arena, where incessant touting of diverse calling plans seems to be the major marketing tool. Some believe these methods contribute significantly to customer options. Others contend that they only contribute to customer confusion. Whatever the view, there is no doubt that advertising is expensive. Telephone companies (em as well as breweries, soap purveyors, carmakers, and politicians (em all help mightily to sustain the television networks.
In bygone days, regulated monopolies generally tried to pursue policies intended to keep equipment in service for its useful life. Thus, telephone companies assessed an extra charge for callers that chose pastel telephones, so as to keep the plain but svelte black models around for a while, avoiding their premature retirement. These days, competition obviously "retires" equipment at any time it becomes supplanted in the consumer's favor by a new model. In this respect, competition is wasteful, and the old ways more frugal. By the same token, the regulated monopolies were more conserving of people, since they generally kept them on board for their useful lives rather than junking them prematurely. The new way, which contemplates "downsizing" on a continuing basis, is economical of money but somewhat profligate of people.
The current scene is also different from bygone days in another major respect. Some years ago, regulated monopolies sought to diversify their businesses and to escape the dead hand of regulation by entering new and different kinds of business. Perhaps due to the inadequacies of executive pay, these forays into diversification met with mixed success. Whether it was insurance or real estate, these new lines of business all appeared to share one thing in common: The diversifiers did not know much about them.
Currently, as they prepare for competition, the great regulated monopolies are not going into new businesses in the United States. Instead, they are going into the same business that they have always been in, but they are doing it in distant, and sometimes exotic, parts of the