Few people have enjoyed the hassle and confusion caused by the break-up of AT&T. The economically enlightened, however, have suffered the inconvenience in good spirit, secure in the knowledge that, in time, the wonders of competition would bring them better telephone service and/or lower costs. How dispiriting then is the recent spectacle of AT&T's new competitors pleading to the government for further protection lest competition drive them from the market.
The prospect of cashing in on AT&T's profitable long distance business has attracted numerous competitors. Even before the court-ordered breakup of the Bell system, some new entrants flourished by picking off the most lucrative of AT&T's long-distance customers. Now, however, with AT&T stripped down for competition, the fledgling companies are worried about the cost of building nationwide networks that will allow them to expand in the face of increasing competition from AT&T and each other.
At this point you may be wondering whether it makes good economic sense to invest billions in building parallel telephone networks. That heretical thought has apparently crossed the minds of some government policymakers, who have reportedly suggested to at least one of the new companies that, upon closer inspection, telephone service may turn out to have been a "natural monopoly" after all -- or at least a field in which only a small number of competitors can survive.
That, of course, is not an idea the new companies can easily accept. So, in the tradition of American capitalism, they are turning to the government to bail them out. Specifically, they are asking for continuation of subsidies meant only to tide them over during the conversion process that would equalize their access to local phone companies.
Given all the physical and intellectual capital invested in the notion of telephone competition, the pressures to provide the subsidies, at least in some disguised form, will be strong. But before it acts, Congress might consider another timely example -- in the maritime industry -- of what can happen whenever government begins to prop up an industry.
For many years the government has provided an ever more complex system of subsidies to keep this country in the business of building and operating commercial ships. In recent weeks that system seems to have reached some final stage of convolution in which hundreds of ship bankruptcies caused by falling worldwide demand for ships are costing the government hundreds of millions of dollars in defaulted loan guarantees, even as one ship operator was peddling for $2 million the right to a federal subsidy for building three more new ships in foreign -- that's right, foreign -- shipyards. It's an example that should give Congress pause.