[bunderbunder]

The physical network is absolutely a natural monopoly - the cost to run copper out to every house in a region is fixed, and any player in the market would need to do just that in order to compete effectively. From a cost efficiency perspective, the ideal number of such networks is one, just as it is for electricity and water.

What's different is that electricity tends to be heavily regulated, and water is generally a public utility. Cable providers are historically under no such constraint, because we tend to think of them as television content providers first and foremost, and the TV bit of the business is not a natural monopoly. Unfortunately that is where they make their money, and that leads to some really obnoxious behavior, including price gouging people who want their network services but not a TV content subscription.

Probably the best solution would be to go the same route that many other countries do and require network operators to share network bandwidth with anyone who can pay for it. That would allow us to re-instate market competition on top of the bit where it cannot occur naturally, while still allowing them to maintain their regularly scheduled TV industry whatever-ness.

[wmf]

Cable TV also seems like a natural monopoly for the same reason as cable Internet — the cost of running the cable itself. Even before cable modems, most places only had one cable company. And my understanding is that cable franchise agreements were written with that assumption. Maybe I don't understand your argument, though.

[bunderbunder]

Different layers of the OSI model are different. Everything up to layer 3 on the local network is a natural monopoly. But above there it's not, and outside that local network it's not.

In the US, this fact was pretty clearly demonstrated when the regulatory overhaul of the telephone industry in the 1990s introduced competition by requiring owners of the local copper to share it, and also by how people are able to choose their long distance carrier. The latter would be analogous to being able to choose among any number of ISPs while still using the same copper to handle the last mile.

[hudibras]

I'm not an expert, but I think what you describe is exactly what happened with telephone service in the United States (i.e, the breakup of Ma Bell, etc.)

[bunderbunder]

It wasn't the breakup of Ma Bell, but the telecommunications deregulation bill of the mid '1990s did include a provision that required local phone service operators to sell access to their network to newcomers at wholesale prices.

Unfortunately, cable companies live under a different set of regulations, so the same rules don't apply to them. Meanwhile the industry progressed to the point that in many markets companies that were once just cable and phone companies now offer the same menu of services. But the law hasn't changed to keep up with that, so the net result is that we've got a regulatory regime that cripples an already anemic competitive environment by arbitrarily giving an enormous advantage to only one of the players.