Competition in Communications

  • Paul Davidson


In the Memorandum Opinion and Order and Notice of Inquiry and Proposed Rule Making, adopted on 9 March 1978 by the FCC, the Commission raised several important questions of social policy regarding the public message telegraph service (hereafter PMS). In the following analysis I shall demonstrate that there is a public need for the PMS which involves social benefits which significantly exceed the private benefits as measured by the market’s willingness to pay for PMS. Moreover, this public need can not be adequately satisfied by alternative existing voice and record services, for none of the alternatives permits universal and easy entry into a network for rapid written communication to almost any point on the face of the earth. Furthermore, given the current alternative record transmission services available on high density routes to big users, if the FCC permits any further segmentation of the remaining PMS market by common carriers, the inevitable outcome is that PMS will not be economically viable without either direct or cross-subsidization by sums which far exceed the current levels of cross subsidization that occurs between subcategories of PMS users and between customers of PMS and other WU services. In other words, if the Commission permits other carriers to provide a PMS service (or a close substitute) for selective submarkets of the nationwide universal PMS market, then the FCC is dooming the universal PMS system to either extinction or else larger and larger subsidies (or even nationalization) will be required in the future to keep PMS operating.


Average Cost Universal Service Supply Price Common Carrier Sole Supplier 
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  1. 3.
    The supply price is the price ‘which is sufficient and only just sufficient to make it worthwhile for people to set themselves to produce the aggregate amount’. In other words, it is the ‘price required to call forth the exertion necessary for producing any given amount of commodity’. (Both quotes are from A. Marshall, Principles of Economics, (New York: Macmillan, 1950) 8th edn, pp. 373 and 142 respectively.) If, in the long run, the supply price including the replacement cost of capital is not earned, the effort necessary to produce the particular service will not be forthcoming.Google Scholar
  2. 5.
    Alfred E. Kahn, ‘The Tyranny of Small Decisions’, Kyklos, (1966) p. 24.Google Scholar
  3. 7.
    The concept of the public good externality nature of the option demand was developed by B. A. Weisbrod, ‘Collective-Consumption Services of Individual-Consumption Goods’, Quarterly Journal of Economics, 78 (August) (1964).Google Scholar
  4. 9.
    P. A. Samuelson, ‘The Pure Theory of Public Expenditure’, Review of Economics and Statistics, 38 (1954) pp. 338–9.Google Scholar

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© Paul Davidson 1991

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  • Paul Davidson

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