Level 3 Communications

Michael Mooney

Monopoly General Hospital

Monopoly General is the largest hospital in Boardwalkville. It provides 90 percent of inpatient hospital services there, and is the only provider of some essential services like obstetrics. It is one of the most expensive hospitals in the state. The rates it charges patients (paid by their health insurance companies) are 70 percent higher than those of its few competitors. To maintain its healthcare monopoly, Monopoly General discounts its exorbitant rates by significant amounts, but only for health insurers who agree to deal exclusively with Monopoly General.

For any health insurer wanting to insure people in Boardwalkville, Monopoly General is a “must have” hospital given its dominance in patient care and its 100 percent monopoly on important things like delivering babies. And because the pricing penalties for contracting with Monopoly General’s rivals are so significant, almost all insurance companies offering health insurance in Boardwalkville agree to Monopoly General’s anti-competitive terms. The result: it is almost impossible for any other hospital to survive, much less grow enough to compete effectively against Monopoly General. That lack of competition means higher prices and lower quality services, all to the detriment of those in need of medical care.

BRILLIANT! And totally illegal. This really happened, until the Department of Justice put a stop to it in 2011.

An eerily similar thing is happening in the communications industry right now. And it’s affecting how well your cell phone works, and how much you pay for it. This may not be as important as medical care, but it’s becoming more important to people all the time.

In the United States, the old monopoly telephone companies have a monopoly over the $40 billion annual market for “special access” wires—the little wires that, among many other things, connect cell towers and ATM machines to the Internet (see link above). They charge “monopoly rents” for these wires, rates that are not subject to effective competition and that are therefore way higher than the rates of their few, smaller competitors. They maintain their monopolies by anti-competitively locking up the market, just like Monopoly General did. When selling these little wires that are essential for communications networks to function and that in most places only they can provide, they offer purchasers a better deal (but still a bad deal) in exchange for commitments not to buy these services from competitors. Or even to self-provide them by building networks of their own.

Even at these discounted rates, the rates charged by the phone companies are well above the rates competitors charge. But the lock-up arrangements limit the ability of the phone companies’ competitors from securing any meaningful share of the special access wire market, competition that would drive prices down. They also limit the deployment of more and better communications networks. The victims of these monopolies are all of us. The phone companies’ monopoly rents are ultimately passed down and paid by ordinary American consumers. And the less connectivity and broadband deployment in America, the less bright our future looks for technological advancement.

We think these practices are illegal, for reasons we describe herein. As the FCC looks into this, the monopoly phone companies have written the FCC hundreds and hundreds of pages trying to defend themselves. And while it seems to us that legitimate practices should not kill so many trees to justify themselves, we hope the FCC will see these practices for what they are, and declare them illegal.