Intercity Buses: The Forgotten Mode

During my last trip to DC, I happened to listen to a debate over a proposal to build a streetcar line in Baltimore. “People won’t ride a bus,” argued one of the streetcar advocates. “To attract tourists, we need to have a streetcar.”

Meanwhile, within a two-block walk of the Cato Institute offices, I could find dozens of buses: charter buses in front of hotels, open-top tour buses filled with tourists, Bolt buses, two-story-high Megabuses, and many more. Most of them filled well over half their seats, except for the city buses which ran nearly empty.

Rail advocates are fond of claiming that Margaret Thatcher said, “A man who, beyond the age of 26, finds himself on a bus can count himself as a failure” — as if support from a fiscal conservative lends credence to their cause. In fact, there is no evidence Thatcher ever said this “or indeed shared the sentiment.”

The truth is that intercity buses are staging a revival, attracting riders of all ages from all walks of life. They are doing so by offering services you can’t get from Amtrak at much lower prices. But because they are unsubsidized, they are ignored by would-be policy makers such as the Surface Transportation Policy Commission. Moreover, accurate data on bus ridership are very hard to come by.

“Some of our members asked to be included in the National Transit Database,” says Robin Phillips of the American Bus Association. “But the Federal Transit Administration says that, because they aren’t subsidized, they can’t be counted.”

The Bureau of Transportation Statistics says that “highway buses” carried 148 billion passenger miles in 2006. This is supposed to be on top of the 23 billion passenger miles carried by transit buses. However, it turns out this is wrong.

The 148 billion comes from table VM-1 of the Federal Highway Administration’s Highway Statistics. However, that table includes all buses, both transit and intercity.

Moreover, it turns out that the 148 billion is based on a pretty crude estimate. The 1983 National Personal Transportation Survey apparently estimated that the average bus carried 21.2 people. Ever since then, the Federal Highway Administration has used that multiplier to convert bus vehicle miles as estimated by the states to bus passenger miles. There have been three National Transportation Surveys since 1983, but apparently none have updated the bus number.

Three kinds of buses contribute to the 7 billion bus vehicle miles counted in Highway Statistics. First are transit buses, including fixed-route buses powered by internal combustion engines (known as “motor buses”), electric trolley buses, and demand response (“paratransit”) buses. The National Transit Database says these buses travel about 2.6 billion miles a year (in 2007) and have an average of about 8 people on board when in service.

Greyhound built this art deco terminal in downtown Washington DC in 1940, and abandoned it in 1987.

Second are private bus companies, including both charter and scheduled buses. The American Bus Association’s census found that more than 3,100 companies operated nearly 30,000 buses in the U.S. in 2007 (p. iv). These buses traveled around 1.6 billion miles and carried around 57 billion passenger miles, for an average of 35 passengers on board (p. v). (The ABA census included both U.S. and Canada, but I prorated the numbers by the U.S.’s share of bus numbers.)

Third are school buses. The American School Bus Council estimates that school buses traveled 5.7 billion bus miles in 2007 transporting an average of 54 students each. But most students are not on board for the entire bus trip, so we can’t multiply 54 by 5.7 billion to get passenger miles.

Restored in 1991, the former Greyhound terminal currently houses various shops and the foyer for the high-rise behind it.

In any case, that brings our total to 9.9 billion bus miles, some 40 percent more than the total estimated by the Federal Highway Administration. Even allowing for some overlap between the ABA, FTA, and ASBC numbers, it seems likely that someone’s numbers are wrong. I suspect the FHwA’s numbers have problems since they are based on estimates provided by the states, and the states in turn are basing their estimates on fuel sales without always knowing for sure who is buying the fuel.

The 57 billion billion passenger miles transported by private buses is about equal to the combined total of Amtrak’s 6 billion passenger miles and public transit’s 52 billion passenger miles (including buses and rail). The ABA census found that 26.5 percent of private bus service, or about 15 billion passenger miles, was scheduled intercity service. Most of the rest was charter, tour, or sightseeing buses, while about 10 percent was commuter buses (some of which may be contracted out by public agencies and thus may overlap with transit numbers) and 3.4 percent was airport shuttles.

So intercity buses carry about 2-1/2 times as many passenger miles as Amtrak. In the intermodal fantasy world of the urban planner, Amtrak provides trunk line service while buses feed into that service. (See, for example, page 6 of the Midwest Regional Rail plan.) The problem with this is it requires heavy subsidies to Amtrak to take business away from unsubsidized buses, leaving the dregs to the buses. The natural result is that the bus companies drop out of intercity service altogether, thus forcing governments to subsidize any feeder buses.

When Amtrak first formed, Greyhound and Trailways bitterly complained that the government was subsidizing its competitor. According to transportation analyst Joseph Schwinterman, intercity bus service declined steadily from 1960 to 2006. Trailways (which was never one company but an association of local bus lines) is nearly gone and Greyhound is a shadow of its former self, having been purchased by Laidlaw, a school bus company, which itself was later purchased by FirstGroup, a British transport company. The decline of scheduled intercity bus service isn’t entirely due to Amtrak, but Amtrak certainly didn’t help.

Bolt and Megabus now use this parking lot about a block from the old Greyhound terminal as their DC bus “station.” The pedestrian path provides little in the way of shelter from the elements, but bus service is so frequent that no one has to wait long.

On the other hand, a new crop of companies have shown that buses can actually compete with Amtrak in some densely populated markets. As the New York Times noted last fall, and the Wall Street Journal last month, bus service in the Boston-to-Washington corridor has been reinvigorated by new low-cost carriers.

As described in this Slate article the intercity bus revival began in 1998, when a man named Pei Lin Liang started the Fung Wah (“magnificent wind”) bus company and offered Boston-to-New York service for $25, half the price then charged by Greyhound. With the internet as its reservations clerk, drivers doing double duty as ticket salesmen to walk ons, and curbsides in Boston and New York serving as bus stations, Fung Wah kept its overhead low.

Fung Wah spurred a variety of competitors, temporarily pushing prices down to $10 per trip in the “bus wars” of the early 2000s. Because many of these companies served the Chinese neighborhoods of Northeastern cities, they became known as Chinatown buses, though the American Bus Association prefers a more politically correct term, “curbside buses.”

A 51-seat Bolt bus is ready to board while an 81-seat Megabus awaits its scheduled departure from the DC parking lot that serves as their terminals.

A British company called Stagecoach jumped into the market under the name Megabus, and some of their buses truly are megabuses, with two levels containing 81 seats. Megabus also competes with Amtrak between New York, Albany, and Buffalo, and has an active Midwest operation serving 17 cities in eight states.

Greyhound responded by partnering with Peter Pan Bus Lines (some history) to create Bolt Bus. Both Megabus and Bolt attracted new riders by initially offering $1-per-trip fares, and each still sells one or two seats on every trip for $1 (plus a 50 cent reservations fee).

Megabus and Bolt promise leather seats, free WiFi, electrical outlets for every seat, and more legroom than their Chinatown competitors. The typical Chinatown bus has 57 seats, and Bolt buses have only 51 to give riders 3 inches more legroom.

According to Schwinterman, intercity bus ridership has been growing at nearly 10 percent per year since 2006. “2007 became the year of the bus’s comeback,” Schwinterman told the New York Times, with “an explosion of new carriers” in the West, Midwest, and Northeast. A map of all of these new bus services would closely resemble the FRA high-speed rail map.

It is curious that so many of these new carriers are owned by either immigrant Chinese or British companies. The Chinese, of course, are well known for their entrepreneurial culture. Britain privatized much of its transit and deregulated intercity transportation in the 1980s, which perhaps makes British companies better tuned to competitive travel markets.

I’ve probably missed a few, but I’ve identified 14 companies directly competing with Amtrak in the Northeast Corridor, including Apex, Bolt, Boston Deluxe, DC2NY, Eastern Travel, Fung Wah, Greyhound, Lucky Star, Megabus, MVP, New Century, Peter Pan, Washington Deluxe, and Vamoose. Although schedules vary by day of the week, these companies offer an average of 160 trips per day each way between New York and Washington, 117 trips between New York and Boston, 82 trips between New York and Philadelphia, 64 between New York and Baltimore, 88 between Washington and Philadelphia, and at least 11 more between New York and other cities in the corridor including Providence, Richmond, and Norfolk (Amtrak’s definition of the NE Corridor extends to Newport News, Virginia). This doesn’t count services to cities that are not in Amtrak’s Northeast Corridor, such as Hartford and Albany. Most of these buses are non stop, which helps make up for slower top speeds than Amtrak.

Assuming an average of 54 seats per bus, this means the various companies provide about 3.4 billion seat-miles of service. Data provided by Bolt and Megabus suggest they typically fill 50 to 67 percent of their seats, and ABA says the Chinatown buses do even better. That means buses are carrying at least 2 billion passenger miles per year in the Northeast Corridor, compared with less than 1.8 billion on Amtrak (calculated from page C-1 of Amtrak’s F.Y. 2008 performance report).

Amtrak brags that it has about half the air-rail market between Boston and Washington (which some people carelessly report as half the total travel market). But when buses are added, Amtrak’s share declines to less than a third. Adding cars probably pushes it to around 10 percent.

There is probably room for both trains and buses in the Northeast Corridor. Amtrak claims that in 2008 its Boston-to-Washington trains covered their operating costs, though not depreciation and interest. Other Amtrak corridor trains cost taxpayers around 7 cents per passenger mile, and more when depreciation and interest are counted, while Amtrak’s long-distance trains cost at least 18.5 cents per passenger mile.

Forced to follow politically determined routes and schedules, public transit buses are some of the least energy-efficient motor vehicles in the U.S. (Streetcars and ferryboats are worse.) But when run by private operators who have an incentive to fill them up, buses are much more energy-efficient than government-run trains.

A study for the American Bus Association found that the average private bus uses 750 BTUs per passenger mile, compared with 2,100 for Amtrak’s intercity trains. Amtrak’s Northeast Corridor is probably more energy-efficient than its other trains, but not as energy-efficient as buses. In 2008, Amtrak filled only 52 percent of the seats on its Boston-to-Washington trains and only 44 percent on its other corridor trains.

In short, buses can and do carry more people than Amtrak at a lower financial and environmental cost without subsidies. All of this makes it hard to justify subsidies to Amtrak, much less high-speed rail.

Share

25 thoughts on “Intercity Buses: The Forgotten Mode

  1. TexanOkie

    I’ve ridden both Amtrak and Greyhound. Amtrak was cooler (rail has a vibe), but Greyhound got where I was going faster and cheaper. They’re especially good with “layovers” – if there’s room on another bus that’s heading in your direction earlier, they just let you right on!

  2. Dan

    I’ve brought this up before, with evidence, albeit I’ve forgotten what evidence I provided.

    There is a widespread perception amongst multiple socioeconomic groups that buses are suboptimal forms of transport, for reasons of status and other such psychological phenomena. The advocate Randal referred to likely meant ‘people’ in the sense of ‘people with money’, instead of ‘people who need non-auto transport’, which are the people who can’t or don’t drive: the young, the poor, the elderly, the disabled.

    DS

  3. the highwayman

    TexanOkie said: I’ve ridden both Amtrak and Greyhound. Amtrak was cooler (rail has a vibe), but Greyhound got where I was going faster and cheaper. They’re especially good with “layovers” – if there’s room on another bus that’s heading in your direction earlier, they just let you right on!

    THWM: What would also be nice is if we had open access rail wise for both freight and passenger in America like with other places in the world. So different operators could run trains.

  4. ws

    ROT:During my last trip to DC, I happened to listen to a debate over a proposal to build a streetcar line in Baltimore. “People won’t ride a bus,” argued one of the streetcar advocates. “To attract tourists, we need to have a streetcar.”

    ws:The problem with buses is that their schedules are difficult to understand, especially for tourists. With rail, you know exactly where it’s going. I think that contributes a lot to this sentiment between bus and rail.

  5. the highwayman

    WS, even with what ROT was saying this is not a situation for motorcoaches. This is a local operation, streetcars also cost less to operate per passenger mile than buses.

    Motorcoaches do have their place in our over all transportation make up. Though with what he is writing about Bolt/Megabus/Greyhound/Peter Pan/Trailways are fully legal, operating safer services, the others tend to be cutting corners and can and have been pulled off the road leaving passengers at some rest area or truck stop to fend for themselves.

  6. C. P. Zilliacus

    the highwayman [sic] stated:

    > What would also be nice is if we had open access rail wise
    > for both freight and passenger in America like with other
    > places in the world. So different operators could run trains.

    In the United States and Canada, with very few exceptions, those rails and their rights-of-way are owned by private corporations like CSX, NS, UP, BNSF, CP and CN. Now there are some exceptions, such as Amtrak’s NEC (though NS, which has trackage rights on a large section of the NEC, can only use them during the overnight hours).

    The U.S. and Canadian highway systems, by contrast, are overwhelmingly owned by the public sector, and even the few segments that are owned or leased by the private sector are open to all users, provided they meet some relatively simple and common safety, size and weight standards. The owners of the highway systems do not, in general, provide vehicles or motive power to the users of those systems – such decisions are left to the users of the network.

    In many European nations, on the other hand, the rails are owned by the government, and any qualified operator can run on them, subject to certain restrictions. That’s the case in the UK, with Network rail and Sweden Transportstyrelsen.

    Somehow, I don’t think that a nationalized railroad network is in the future of the U.S. or Canada – which would seem to be a prerequisite for the “open access” you seem to pine for.

  7. the highwayman

    Though that’s the same thing as with other public utilities.

    As with electricity or phone service. Think back to the Bell System.

  8. the highwayman

    http://www.cato.org/pubs/journal/cjv14n2-6.html

    UNNATURAL MONOPOLY: CRITICAL MOMENTS IN THE DEVELOPMENT OF THE BELL SYSTEM MONOPOLY

    Adam D. Thierer

    Congress finally began the long-needed process of comprehensive telecommunication deregulation in 1994, exactly 60 years after their last major legislative effort, the Communications Act of 1934, was enacted. Legislators appear to finally realize what has been evident to many industry leaders and analysts for years–regulation is impeding the growth of new technologies, jobs, and exports, while simultaneously denying consumers the benefits of competition. Unfortunately, in an attempt to remedy the inefficiencies created by nearly a century’s worth of regulation, Congress crafted a reform package that was anything but deregulatory. Both the House and Senate bills were over 200 pages long, contained 50 new regulatory powers, and included protectionist manufacturing requirements. Largely as a result of this pro-regulatory baggage, the bill finally died in the Senate in mid-September of 1994.

    Before Congress makes any rash decisions on how to manage competition within the industry, legislators should review how the old Bell monopoly developed. Most legislators, academics, and many others believe the telephone industry is a natural monopoly that was privately monopolized by the aggressive actions of the American Telegraph and Telephone Company (AT&T). That was hardly the case. Although AT&T undoubtedly encouraged the monopolization of the industry, it was the actions of regulators and federal and state legislators that eventually led to the creation of a nationwide telephone monopoly.

    In this paper I shall argue that the reason competition did not arise within the industry earlier this century is because it was not allowed to. Specifically, three forces drove the monopolization process:

    1. The intentional elimination of what was considered wasteful or duplicative competition through exclusionary licensing policies, misguided interconnection edicts, protected monopoly status for dominant carriers, and guaranteed revenues for those regulated utilities;

    2. The mandated social policy of universal telephone entitlement, which implicitly called for a single provider to easily carry out regulatory orders; and

    3. The regulation of rates (through rate averaging and cross-subsidization) to achieve the social policy objective of universal service.

    The combined effect of those policies was enough to kill telephone competition just as it was gaining momentum. Hopefully, by understanding exactly how those policies encouraged the growth of a telephone monopoly, policymakers can craft more pro-competitive legislation in the future.

    The Bogus Natural Monopoly Model

    For many decades, economic textbooks have held up the telecommunications industry as the ideal model of natural monopoly. A natural monopoly is said to exist when a single firm is able to control most, if not all, output and prices in a given market due to the enormous entry barriers and economies of scale associated with the industry. More specifically, a market is said to be naturally monopolistic when one firm can serve consumers at lower costs than two or more firms (Spulber 1995: 31). For example, telephone service traditionally has required laying an extensive cable network, constructing numerous call switching stations, and creating a variety of support services, before service could actually be initiated. Obviously, with such high entry costs, new firms can find it difficult to gain a toehold in the industry. Those problems are compounded by the fact that once a single firm overcomes the initial costs, their average cost of doing business drops rapidly relative to newcomers.

    The telephone monopoly, however, has been anything but natural. Overlooked in the textbooks is the extent to which federal and state governmental actions throughout this century helped build the AT&T or “Bell system” monopoly. As Robert Crandall (1991: 41) noted, “Despite the popular belief that the telephone network is a natural monopoly, the AT&T monopoly survived until the 1980s not because of its naturalness but because of overt government policy.”

    Indeed, a chronological review of the industry’s development produces an indisputable conclusion–at no time during the development of the Bell monopoly did government not play a role in fostering a monopolistic system. Adherents to the old school of thought correctly point out that AT&T attempted to restrict competition throughout this century. Yet, this fact is irrelevant. Every business logically tries its hardest to exclude competitors. What is more important, and widely ignored, is exactly how federal and state government actions encouraged the Bell monopoly to develop during the early years of this century. Once the government allowed this monopoly to develop with its assistance, AT&T’s strength could not be matched by any competitor, resulting in a monopolistic market structure that survived well into the 1980’s.

    AT&T’s Patent Monopoly, 1876-94

    When Alexander Graham Bell patented the telephone on March 7, 1876, few people realized just how important his new invention would become for American commerce and society in general. America was still in love with the telegraph and saw little immediate use for the telephone. Mark Twain even likened investment in the new technology to “wildcat speculation.” Western Union, the most powerful telegraph company of the era, actually passed up the opportunity to buy the Bell patents for $100,000 believing the device was nothing more than a passing novelty.

    Unfortunately for Western Union, the telephone turned out to be anything but a passing fad. Use of the device slowly gained acceptance, primarily among business users. Yet, compared to later decades, this Bell patent monopoly era was characterized by limited growth of service. From 1880 to 1895, average daily calls per 1,000 of population rose from only 4.8 to 37. Contrasting this 15-year patent monopoly period with the competitive period that followed the expiration of the Bell patents in 1894, average daily calls per 1,000 people jumped from 37 in 1895 to 391.4 in 1910. The number of telephones per 1,000 people also showed much more dramatic expansion during the competitive period after patent expiration than before. Telephones per 1,000 people rose from only 1.1 in 1880 to 4.8 in 1895, but skyrocketed to 82 by 1910. (See Table 1.)

    Clearly, the Bell patent monopoly period was not as beneficial for the extension of service as the competitive period that would follow. Yet, by the end of its patent monopoly period, the Bell System had grown large enough to pose a formidable challenge to Western Union, the same company that had failed to buy up the original patents just 20 years earlier. But, with the expiration of their crucial patents between 1893-94, the Bell system faced an uncertain future. Although Bell had filed over 600 patent infringement suits to defend its 900-plus patents during this period, the company had no choice but to try its hardest to fend off the many new firms that were waiting for a chance to gain access to this lucrative new market. The Bell monopoly was, at least temporarily, dead.

    Table 1

    Spread of Telephone Service, 1880-1920

    Year
    Average Daily Calls Per 1,000 Population
    Telephones Per 1,000 of Population

    1880
    4.8
    1.1

    1885
    13.3
    2.7

    1890
    23.0
    3.7

    1895
    37.0
    4.8

    1900
    103.6
    17.6

    1905
    258.7
    48.8

    1910
    391.4
    82.0

    1915
    446.0
    103.9

    1920
    486.5
    123.9

    SOURCE: Hyman, Toole, and Avellis (1987: 93).

    The Development of Competition, 1894-1913

    Despite AT&T’s rapid rise to market dominance, independent competitors began springing up shortly after the original patents expired in 1893 and 1894. These competitors grew by servicing areas not served by the Bell System, but then quickly began invading AT&T’s turf, especially areas where Bell service was poor. According to industry historian Gerald W. Brock (1981: 112), by the end of 1894 over 80 new independent competitors had already grabbed 5 percent of total market share. The number of independent firms continued to rise dramatically such that just after the turn of the century, over 3,000 competitors existed. Illinois, Indiana, Iowa, Missouri, and Ohio each had over 200 telephone companies competing within their borders (Brock 1981: 111). By 1907, non-Bell firms continued to develop and were operating 51 percent of the telephone businesses in local markets. Prices were driven down as many urban subscribers were able to choose among competing providers. AT&T’s profits and prices during this period began to shrink due to increased competition. Whereas AT&T had earned an average return on investment of 46 percent in the late 1800s, by 1906 their return had dropped to 8 percent (Hyman et al. 1987: 78). As Brock (1981: 122) noted, this competitive period brought gains unimaginable just a few years earlier,

    After seventeen years of monopoly, the United States had a limited telephone system of 270,000 phones concentrated in the centers of the cities, with service generally unavailable in the outlying areas. After thirteen years of competition, the United States had an extensive system of six million telephones, almost evenly divided between Bell and the independents, with service available practically anywhere in the country.

    Industry historians Leonard S. Hyman, Richard C. Toole, and Rosemary M. Avellis (1987: 90) summarize the overall effect of this period by saying, “It seems competition helped to expand the market, bring down costs, and lower prices to consumers.”

    The rapid ascendancy of competition casts doubt on the natural monopoly model of this industry. It appears AT&T’s only claim to monopoly power prior to this period could be attributed to their numerous patents, not superior economies of scale as the natural monopoly theorists believed. In fact, as J. Maurice Clark concluded in his famous 1923 Studies in the Economics of Overhead Costs, “Telephone companies . . . show no signs of economy with increased size, but rather the opposite” (1923: 321). Hence, the most important justification for regulation of the telephone industry–that it was a natural monopoly with rapidly declining costs as its size increased–was not present during this era. Yet, as we shall see later, that fact would not stop AT&T and government regulators from arguing to the contrary.

    Economies of scale constitute only part of the natural monopoly equation; high barriers to market entry constitute the other half. Yet, despite the large costs associated with telephone service initiation, new competitors were entering the market easily during this period. Hence, the barriers to entry were not so high as to exclude immediately new competitors. To explain the rapid demise of competition that would take place over the next few years, some other type of entry barrier had to develop. That new impediment would take the form of both subtle and blatant government intervention throughout the next decade.

    Theodore Vail, Nationalization, and the End of Competition, 1913-21

    Before examining exactly how the legal barriers to competition developed within the telephone industry, it is important to review the significance of a single man–Theodore Newton Vail. On April 30, 1907, Vail returned to AT&T as president,[1] marking the beginning of [cl12.25]the end of telephone competition. His return to the firm changed its fundamental focus from competition to consolidation. Vail’s most important goals upon taking over AT&T were the elimination of competitors, the befriending of policymakers and regulators, and the expansion of telephone service to the general public. Reflecting Vail’s belief in the superiority of a single telephone system, AT&T adopted a new corporate slogan as part of an extensive advertising campaign: “One Policy, One System, Universal Service.” In AT&T’s 1910 Annual Report, Vail summarized his belief in a single system saying, “Effective, aggressive competition, and regulation and control are inconsistent with each other, and cannot be had at the same time.” To achieve this vision, Vail began acquiring a number of independent telephone competitors, as well as telegraph giant Western Union. However, the government made it known quickly that such activity was suspect under existing antitrust statutes.

    Wisely realizing the government was considering action to break up the growing firm, Vail decided to enter an agreement that would appease governmental concerns while providing AT&T a firm grasp on the industry. On December 19, 1913, the “Kingsbury Commitment” was reached. Named after AT&T Vice President Nathan C. Kingsbury, who helped negotiate the terms, the agreement outlined a plan whereby AT&T would sell off its $30 million in Western Union stock, agree not to acquire any other independent companies, and allow other competitors to interconnect with the Bell System.

    The Kingsbury Commitment was thought to be pro-competitive. Yet, this was hardly an altruistic action on AT&T’s part. The agreement was not interpreted by regulators so as to restrict AT&T from acquiring any new telephone systems, but only to require that an equal number be sold to an independent buyer for each system AT&T purchased. Hence, the Kingsbury Commitment contained a built-in incentive for monopoly-swapping rather than continued competition. Brock (1981: 156) noted, “This provision allowed Bell and the independents to exchange telephones in order to give each other geographical monopolies. So long as only one company served a given geographical area there was little reason to expect price competition to take place.”

    Ironically, the move toward interconnection, while appearing in the independents’ favor, actually allowed AT&T to gain greater control over the industry. Brock (1981: 156) found that “interconnection reduced the Bell’s ability to drive the independents out of business but also eliminated the independents’ incentive to establish a competitive long-distance system.” Michael K. Kellogg, John Thorne, and Peter W. Huber (1992: 16-17) concluded:

    The government solution, in short, was not the steamy, unsettling cohabitation that marks competition but rather a sort of competitive apartheid, characterized by segregation and quarantine. Markets were carefully carved up: one for the monopoly telegraph company; one for each of the established monopoly local telephone exchanges; one for the Bell’s monopoly long-distance operations. Bell might not own everything, but some monopolist or other would dominate each discrete market. The Kingsbury Commitment could be viewed as a solution only by a government bookkeeper, who counted several separate monopolies as an advance over a single monopoly, even absent any trace of competition among them.

    Hence, AT&T’s short-term deal to steer clear of government regulation, would have long-term gains exactly the opposite of those the government supposedly desired. This was the beginning of the end for telephone competition (see Figure 1). Although it is impossible to say exactly what would have happened if AT&T had not been pressured into the Kingsbury Commitment, it is not outrageous to hypothesize that competition would have continued to flourish.

    Figure 1
    Percentage of Telephones Owned by Bell, 1800-1920

    At this point, more explicit government actions began to have a deleterious impact on the industry. Despite the fears of many public officials that AT&T could become a ruthless monopolist, a contradictory notion began to develop that monopoly was inherently “natural” within this industry. Numerous federal and state officials began arguing quite openly that the telephone industry would function most efficiently if unified as one system. Legislators began referring to competition in the same terms as Vail–“duplicative,” “destructive,” and “wasteful.” A Senate Commerce Committee hearing in 1921 stated that “telephoning is a natural monopoly.” And a House of Representative committee report noted, “There is nothing to be gained by local competition in the telephone business” (quoted in Loeb 1978: 14). A Michigan Public Utilities Commission report (1921: 315) from that same year also illustrates this prevailing sentiment, “Competition resulted in duplication of investment. . . . The policy of the state was to eliminate this by eliminating as far as possible, duplication.” Many state regulatory agencies began refusing requests by telephone companies to construct new lines in areas already served by another carrier and continued to encourage monopoly swapping and consolidation in the name of “efficient service” (Lavey 1987: 184-85). Kellogg, Thorne, and Huber (1992: 17) sum up the prevailing sentiment: “To judge by actions, then, rather than words, government officials had no strong objection to monopoly telephone service. This was especially true for state regulators. For them, a local telephone monopoly was both welcome and convenient.”

    Not surprisingly, Vail’s vision of “one system” that would provide “universal service” to everyone, began looking more attractive to many in public office. Richard H.K. Vietor (1994: 172) of Harvard University argues, “Vail chose at this time to put AT&T squarely behind government regulation, as the quid pro quo for avoiding competition. This was the only politically acceptable way for AT&T to monopolize telephony. . . . It seemed a necessary trade-off for the attainment of universal service.” As AT&T’s 1917 Annual Report noted, “A combination of like activities under proper control and regulation, the service to the public would be better, more progressive, efficient, and economical than competitive systems.”

    Industry historian Robert W. Garnet (1985: 130) provides further support for Vietor’s findings:

    Regulation played a crucial role in Vail’s plans. Astute enough to realize that the kind of system he proposed–universal integrated monopoly–would stand little chance of gaining public approval without some form of public control, he embraced state regulation. In doing so, he broke with the company’s long-standing opposition to what [AT&T] management had traditionally regarded as an unwarranted intrusion on its prerogatives. But after years of unfettered competition, during which the firm’s financial strengths had been sapped and its efforts to build an integrated system had been dangerously undermined, regulation became a much-preferred alternative. Thus, Vail obviously saw government regulation as the way to eliminate competitors: the one-way ticket, not only to universal service, but also to monopoly profits.

    World War I and Nationalization

    The stage was then set for the complete monopolization of the industry by AT&T. The regulatory treatment AT&T received was facilitating their take-over of the industry while, at the same time, allowing them to state publicly that they were under strict government control. Yet, despite the fact that the tables were certainly tilted in AT&T’s favor in most areas, competition persisted in some regions. It was World War I, the nation’s first global crisis, that would provide the government with a convenient excuse to forcefully gain control over communications and forever change the structure of the telephone industry. On August 1, 1918, in the midst of World War I, the federal government nationalized the entire telecommunications industry for national security reasons.

    At first, AT&T executives became nervous when it was announced that Postmaster General Albert S. Burleson, a long-time advocate of nationalizing the telegraph and telephone industries, would assume control of the market. But, once the benefits of nationalization where made evident to Vail, his anxieties disappeared. Industry historian George P. Oslin (1992: 278) notes when Vail expressed concern over the plan to Western Union President and close personal friend Newcom Carlton, Carlton reassured Vail that the plan was in his interest: “It’s your salvation. The government will be able to raise your rates and get you new money.” As Oslin (252) argues, “That was what happened. Burleson appointed Vail, rated by Carlton as a genius, to manage the telephone, and Carlton to operate the telegraph.”

    Noobar R. Danielian (1939: 248) concurs: “There is evidence that Vail appreciated the advantages of Federal control . . . he was not in much of a hurry in the early part of 1919 to have his System back from nominal government control.” This attitude should not be at all surprising since shortly after the industry was nationalized, AT&T’s proposed contract establishing the terms of government ownership and compensation was accepted by the postmaster general. Danielian (1992: 252) summarizes the deal as follows:

    The federal government . . . agreed to pay to AT&T 4 1/2 percent of the gross operating revenues of the telephone companies as a service fee; to make provisions for depreciation and obsolescence at the high rate of 5.72 percent per plant; to make provision for the amortization of intangible capital; to disburse all interest and dividend requirements; and in addition, to keep the properties in as good a condition as before. Finally, AT&T was given the power to keep a constant watch on the government’s performance, to see that all went well with government operation, by providing that the books of the Postmaster General would be at all times open for inspection. One might well wonder where the real control was lodged. Needless to say, the contract was eminently satisfactory to the Bell System.

    In addition, once the nationalized system was in place, AT&T wasted no time applying for immediate and sizable rate increases. High service connection charges were put into place for the first time. AT&T also began to realize it could use the backing of the federal government to coax state commissions into raising rates. Vail personally sent Postmaster General Burleson studies that displayed the need to raise rates. By January 21, 1919, just 5 1/2 months after nationalization, long-distance rates had increased by 20 percent. In addition to being much greater than returns earned during more competitive years, the rates established by the postmaster during the year of nationalization remained in force many years after privatization. Consequently, AT&T’s generous long distance returns continued to average near or above 20 percent during the 1920s.

    By the time the industry was returned to private control on August 1, 1919, the regulatory route to competition elimination had paid off handsomely for Vail and AT&T. Of the estimated $50 million in rate increases approved by the postmaster general during nationalization, approximately $42 million, or 84 percent went to AT&T. Additionally, the government cut AT&T a $13 million dollar check at the end of the period to cover any losses they may have incurred, despite the fact that none were evident.

    The Importance of Rate Regulation

    The year of government nationalization was the nail in the coffin of competition. However, the favorable regulatory treatment AT&T received during government ownership was only partially to blame for the death of competition. Of much greater importance, according to Hyman, Toole, and Avellis (1987: 81), was the initiation of extensive rate regulation:

    During this period of government ownership, the decision was made to set standard long-distance rates throughout the country, based on average costs. In other words, subscribers calling from large cities would pay above costs in order to provide a subsidy to those in rural areas. So, early in the century cross-subsidization began, embraced by the industry, which rarely question the premise behind [fn5]the arrangement that the ability to communicate with subsidized subscribers was of value to the subsidizing subscribers. As long as the telephone industry had a monopoly and regulators approved of the arrangement, it did not matter what subscribers wanted. They had no choice.

    The intention of this action was obvious–Vail’s vision of a single, universal service provider was being adopted and implemented by the government through discriminatory rate structuring.

    The decision to initiate rate averaging is vitally important to understanding exactly how the telephone monopoly developed for three reasons. First, rate regulation in the pursuit of universal service objectives virtually demands a single monopolistic provider in order to be truly effective. Few firms would ever have the ability to adequately fulfill universal service obligations unless they were already sufficiently large to use revenues from one segment of their business to subsidize the extension of service to citizens that policymakers wanted covered. In addition, regulators favor monopolies or cartels to carry out such social polices since they find it easier to control their actions rather than the actions of multiple competitors. Hence, in the quest to achieve social policy goals, regulatory commissions end up depending upon one, or a handful of firms to provide all industry output. Consequently, competition is made difficult, if not impossible. In the words of regulatory economist Alfred E. Kahn (1971: 12),

    When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition.

    Second, the initiation of extensive federal rate regulation is important because it propelled state regulatory commissions to follow suit by greatly extending the scope of their authority. By 1922, 40 of 48 states were regulating telephone rates (Noll 1991: 180). The public utility commissions at the state level immediately began to mimic federal policies established during World War I. Businesses and urban subscribers were charged more than rural customers to help extend service to distant locations. Likewise, long-distance rates were averaged to ensure a company could not charge more for toll calls of the same distance. Robert Garnet (1985: 152) describes this state-based rate regulation: “Statewide rate averaging would eventually become a distinguishing feature of Bell System subscriber charges and would be embraced by regulators as a strategy for promoting the extension of telephone service to areas of marginal earnings potential.” And that is exactly what happened. By 1925 not only had virtually every state established strict rate regulation guidelines, but local telephone competition was either discouraged or explicitly prohibited within many of those jurisdictions. [2]

    Third, by averaging rates geographically to artificially suppress rural rates, policymakers and regulators created a serious disincentive to local telephone competition. Few firms, after all, will seek to enter a market and offer service if they realize it is difficult, if not impossible, to undercut the subsidized service of the incumbent carrier.

    After reflecting on the overall impact of the introduction of regulation during this period, Brock (1981: 159-61) maintained,

    The combination of state and federal regulation stabilized the industry and ended the rate wars that had occurred during the early period of competition. Regulation increased the difficulty of new entry. . . . By accepting regulation voluntarily, Bell reduced the risk that unfavorable regulation would be imposed. The system of competing federal and state regulation, together with the complex Bell structure, prevented real regulatory control while providing the protection and legitimacy of a regulated utility. . . . The acceptance of regulation was a risk-reducing decision. It substituted a limited but guaranteed return on capital and management freedom for the uncertainty of the marketplace. It gave the Bell system a powerful weapon to exclude competitors and justification for seeking a monopoly, as well as reducing the chances of outright nationalization or serious antitrust action.

    Hence, universal service, the final element of AT&T’s strategy to eliminate competition, was in place thanks to the explicit actions of both federal and state legislators and regulators. Once AT&T’s motto was adopted as the nation’s de facto regulatory policy, no other firm was in a position to adequately extend service in accordance with the new federal and state mandated social policy. The Bell monopoly was here to stay.

    The FCC and Telephone Entitlement

    A few years later, this new unwritten law of the land was codified as the raison d’etre of the Federal Communications Commission (FCC) with the passage of the Communications Act of 1934. The commission was created, “for the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.”

    In effect, every American was henceforth found to be entitled to the right to telephone service, specifically cheap telephone service. To carry out this difficult policy objective, the FCC was given sweeping powers. Beside its powers to regulate rates to ensure they were “just and reasonable,” the FCC was also given the power to restrict entry into the marketplace. Potential competitors were, and still are required to obtain from the FCC a “certificate of public convenience and necessity.” The intent of the licensing process was again to prevent “wasteful duplication” and “unneeded competition.” In reality, it served as a front to guard the interests of the regulated monopoly and the FCC’s social agenda.

    The overall hostility to competition by the FCC and the drafters of the legislation that gave birth to it is best illustrated by a 1988 Department of Commerce report on the development of the telecommunications industry. The report notes, “The chief focus of the Communications Act of 1934 was on the regulation of telecommunications, not necessarily its maximum development and promotion. [T]he drafters of the legislation saw the talents and resources of the industry presenting more of a challenge to the public interest than an opportunity for national progress” (164).

    Over time the FCC would come to see the Bell System simply as the implementor of its agenda. Consequently, it would continue to use its power in favor of AT&T when potential competitors threatened the firm’s hegemony. Their bureaucratic mismanagement of the radio spectrum (which was nationalized under the Radio Act of 1927) meant the most capable competitor of the era would never be given a chance to compete. Despite the fact that wireless technologies would be greatly developed in the near future, the possibility of serious wireless competition rising up to meet the Bell challenge in the first half of this century became less likely once government forces, instead of market forces, controlled how the spectrum was allocated. Just as the wireline technologies where subject to blatant political manipulation, the wireless spectrum became the tool of regulatory and special interests; competition was again dealt a severe blow.

    Thomas Hazlett (1990) has proven that the nationalization of the radio spectrum was a special interest fiasco that was totally unnecessary. Property rights within the spectrum were developing and could have become the norm if not for the intervention of federal regulators at the request of industry leaders. Kellogg, Thorne, and Huber (1992: 19-20) have also pointed out the anti-competitive nature of the 1927 Radio Act:

    A gentlemanly agreement, reached under political pressure, had once again replaced competition with complementary monopolies. It reaffirmed the general prohibition on “monopoly” of the airwaves–meaning that competition over the airwaves was prohibited, at least if it came from Bell. The Act forbade cross-ownership of telephone companies and broadcasting stations, and flatly rejected the operation of radio stations as `common carriers.’ None of this could have concerned top officials at RCA or Bell very much. Congress merely cemented and strengthened a division of markets and territories that the parties had already voluntarily embraced.

    Likewise, when the cable industry appeared on the scene several years later, it was restrained from entering other market segments. Finally, as mentioned, in those intrastate markets the FCC did not have jurisdiction over, state commissions protected local monopolies by restricting entry and guaranteeing their revenues.

    Needless to say, by World War II, the communications industry had become a good old boy network. Regulators and the regulatees realized they had something to gain by allying in opposition to the forces of competition. Alfred Kahn (1971: 46) recognized the cozy nature of the regulator-regulatee relationship: “Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods.”

    Hence, owing to a federal policy that placed higher value on immediate universal service than competition, the Bell monopoly was solidified.

    The Lessons for Today’s Legislators

    The belief that government intervention substantially decreased competitive opportunities within the telecommunications industry is borne out by the historical record. The actions of legislators and regulators, both deliberate and accidental, led to the creation of the Bell monopoly. The demise of competition within the industry was brought about by three primary forces:

    1. The removal of “wasteful” or “duplicative” competition through exclusionary licensing policies, misguided interconnection edicts, protected monopoly status for dominant carriers, and guaranteed revenues for those regulated utilities;

    2. The mandated social policy of universal telephone entitlement, which called for a single provider to easily carry out regulatory orders; and

    3. regulation of rates (through averaging and cross-subsidization) to achieve the social policy objective of universal service.[3]

    The combination of these government-induced policies, which were introduced in rapid succession, was enough to kill telephone competition just as it was gaining momentum.

    Despite this evidence, many economists still argue that in the absence of government control, a monopoly would have developed and consumers would have been exploited to a greater extent in the process. Such an outcome is questionable. Even if the assumption is granted, it is arguable that such an outcome would have proven as disastrous as the monopoly theorists believe. Such a suboptimal market setting would have invited entrepreneurial solutions to the monopolistic practices, encouraging the development of competitive technologies to satisfy consumer demands. [4] This entrepreneurial activity might have taken place much sooner had government not erected legal barriers to competition throughout the industry. Once the government rigged the rules of the game to favor one firm over all others, competition was virtually impossible.

    A review of the historical record of American telephony, considered to be the prime example of a natural monopoly industry, serves as an excellent starting point for a fundamental reassessment of the validity of natural monopoly theory. Some economists have challenged the notion that monopolies are in any sense natural. James R. Nelson (1966: 3) claimed:

    One of the most unfortunate phrases ever introduced into law or economics was the phrase “natural monopoly.” Every monopoly is a product of public policy. No present monopoly, public or private, can be traced back through history in a pure form. “Natural monopolies” in fact originated in response to a belief that some goal, or goals, of public policy would be advanced by encouraging or permitting a monopoly to be formed, and discouraging or forbidding future competition with this monopoly.

    Hazlett (1985: 21) has also weighed in by refuting many of the obsolete notions upon which natural monopoly theory is based:

    The economists’ analysis of the inefficiency of unregulated natural monopoly markets did not spring from a scientific or particularly scholarly research program but in response to “a growing clamor for more government.” Indeed many of the early natural monopoly writers had attacked the problem because of personal ideological agendas; their politics preceded their studies.

    Finally, economists with allegiance to the Austrian School of economics, such as Dominick T. Armentano (1990), F.A. Hayek (1948), and Israel M. Kirzner (1973), believe that not only are answers to the questions about natural monopoly wrong, the questions themselves are improperly formulated. Competition, these scholars insist, is a dynamic process of constant entrepreneurial adjustment to market signals. The market is never at rest; today’s monopoly could be tomorrow’s competitive market. A truly competitive marketplace, therefore, will be free of any artificial restraints or barriers to entry that interrupt this dynamic adjustment process. Hence, when examining the development of the telephone market through an Austrian paradigm, it should be obvious that the only “failure” was not of the market, but of legislators and regulators who failed to allow entrepreneurial solutions to develop.

    The most important lesson legislators can draw from this study is that government intervention need not be explicit or massive to have serious long-term and deleterious effects on competition within an industry. In the case of telecommunications, the government’s simple stipulation that rates be artificially set to reflect certain social policy objectives was the crucial factor that led to the creation of the AT&T monopoly. Other factors, such as interconnection requirements, also illustrate how good intentions can often have disastrous results. In this case, interconnectivity provided a disincentive to built competing systems, tilting the market in AT&T’s favor.

    Still, legislators demand specific answers for many difficult questions. First, there is the question already addressed briefly above–would not a free market for telecommunications be privately monopolized or oligopolized anyway? To answer this more succinctly, there is no doubt that all businesses would like to capture an entire market for themselves and receive exorbitant profits from the goods and services they produce. But, the beauty of the free market is that it tames such tendencies through competition and entrepreneurship. Every time a producer ignores the needs of consumers, entrepreneurs see the opportunity to step in and fill the market’s need. General Motors and IBM can both attest to the truth of this phenomenon. At one time they both sat atop their respective markets, only to find their perfect worlds shattered by innovative competitors. Ironically, both GM and IBM were once targets of federal antitrust investigations. Would the automobile or computer industry be any more competitive today had the government broken up either of these companies? Likewise, would consumers have been better off if either firm was granted the status of a government-regulated monopolist? It would be hard to argue that that would be the case–both industries are now vigorously competitive precisely because the market was allowed to work; consumer power took precedence over arbitrary regulatory power.

    But what about universal service? Would a telecommunications free market have guaranteed everyone access to a telephone? At first, definitely not. Competition would have taken time to develop to the point were everyone was provided access. But, just as virtually every American gained access to a radio and television (and many to a video cassette recorder) through free-market competition, telephones would have eventually become ubiquitous without government mandates. The demand for telephone service is too inelastic to image the opposite being the case. Quite likely, innovative products would first have been introduced into lucrative business markets and then slowly spread out to rural, residential areas as consumer demand grew. Thus, the extension of telephone service probably would have progressed much as television and computers have. Competitors would have eventually formulated appropriate interconnection charges to ensure that a spontaneous universal system developed. It would have become virtually impossible for a firm to survive if it did not agree to interconnect with others. As for those citizens in far-off rural areas that legislators most fear would be forgotten, wireless systems would have eventually arisen to accommodate their needs. Although such service would not have been cheap initially, it would have been available.

    Yet, instead of patiently allowing competition to develop within the telecommunications industry, arrogant legislators thought they better understood how to order the marketplace, and intervened to conduct their experiment. Their hastiness allowed AT&T to monopolize one of the most important industries in existence. Their mistakes should make us question the validity of any statements by today’s legislators that they better understand how to make the marketplace competitive.

    ___________________________________
    The author is the Alex C. Walker Fellow in Economic Policy at the Heritage Foundation.

    References

    Armentano, D.T. (1990) Antitrust and Monopoly: Anatomy of a Public Policy Failure. New York: Holmes & Meier.

    Brock, G.W. (1981) The Telecommunications Industry: The Dynamics of Market Structure. Cambridge: Harvard University Press.

    Brooks, J. (1975) Telephone: The First Hundred Years. New York: Harper and Row.

    Clark, J.M. (1923) The Economics of Overhead Costs. Chicago: University of Chicago Press.

    Crandall, R.W. (1991) After the Breakup: U.S. Telecommunications in a More Competitive Era. Washington, D.C.: The Brookings Institution.

    Danielian, N.R. (1939) AT&T: The Story of Industrial Conquest. New York: Vanguard Press.

    Demsetz, H. (1968) “Why Regulate Utilities?” Journal of Law and Economics 11 (April): 55-65.

    Federal Communications Commission (1939) Investigation of the Telephone Industry in the United States. Washington, D.C.: U.S. Government Printing Office.

    Garnet, R.W. (1985) The Telephone Enterprise: The Evolution of the Bell’s Horizontal Structure, 1876-1909. Baltimore, Md.: The Johns Hopkins University Press.

    Hayek, F.A. (1948) “The Meaning of Competition.” In Hayek Individualism and the Economic Order. Chicago: University of Chicago Press.

    Hazlett, T.W. (1985) “The Curious Evolution of Natural Monopoly Theory.” In Poole, R.W. (ed.) Unnatural Monopolies: The Case for Deregulating Public Utilities. Lexington, Mass.: Lexington Books.

    Hazlett, T.W. (April 1990) “The Rationality of U.S. Regulation of the Broadcast Spectrum.” Journal of Law & Economics 33: 133-75.

    Herring, J.M., and Gross, G.C. (1974) Telecommunications: Economics and Regulation. New York: Arno Press.

    Hyman, L.S., Toole, R.C., and Avellis, R.M. (1987) The New Telecommunications Industry: Evolution and Organization. Vol. 1. Public Utility Reports, Inc.

    Kahn, A.E., (1971) The Economics of Regulation: Principles and Institutions. Cambridge, Mass.: The MIT Press.

    Kellogg, M.K., Thorne, J., and Huber, P.W. (1992) Federal Telecommunications Law. Boston: Little, Brown.

    Kirzner, I.M. (1973) Competition and Entrepreneurship. Chicago: University of Chicago Press.

    Kraus, C.R., and Duerig, A.W. (1988) The Rape of Ma Bell, 19-33. Secaucus, N.J.: Lyle Stuart.

    Lavey, W.G. (1987) “The Public Policies That Changed the Telephone Industry Into Regulated Monopolies: Lessons From Around 1915.” Federal Communications Law Journal 39(3): 171-94.

    Loeb, G.H. (1978) “The Communications Act Policy Toward Competition: A Failure to Communicate.” Duke Law Journal 1978(1): 1-56.

    Michigan Public Utilities Commission (1921) Citizens Telephone Co. of Grand Rapids. PUR 1921 E: 308, 315.

    Mueller, M. (July 1993) “Universal Service in Telephone History: A Reconstruction.” Telecommunications Policy: 352-69.

    Noll, A.M. (1991) Introduction to Telephones & Telephone Systems, 177-186. Boston: Artech House.

    Nelson, J.R. (1966) “The Role of Competition in the Regulated Industries.” The Antitrust Bulletin XI: 1-36. Jan.-Apr.

    Oslin, G.P. (1992) The Story of Telecommunications. Macon, Ga.: Mercer University Press.

    Spulber, D.F. (1995) “Deregulating Telecommunications.” Yale Journal of Regulation 12(1): 25-67.

    The President’s Council on Competitiveness (September 1992) “Telecommunications.” In The Legacy of Regulatory Reform: Restoring America’s Competitiveness, 32-41. U.S. Government Printing Office.

    United States Department of Commerce (October 1988) NTIA Telecom 2000: Charting the Course for a New Century. Washington, D.C.: U.S. Government Printing Office.

    United States Telephone Administration (1990) The History of the Telephone Industry. Washington, D.C.

    Vietor, R.H.K. (1994) Contrived Competition: Regulation and Deregulation in America, 167-185. Cambridge, Mass.: Harvard University Press.

    Wiley, R.E. (1981) “Competition and Deregulation in Telecommunications: The American Experience.” In Lewin, L. (ed.) Telecommunications in the U.S.: Trends and Policies, 38-42. Boston: Artech House.

    Cato Journal, Vol. 14, No. 2 (Fall 1994). Copyright Cato Institute. All rights reserved.

    Notes

    [1] He had previously served as president from 1885-87.

    [2] Many such prohibitions and restrictions still exist today. According to the National Association of Regulatory Utility Commissioners’ Summary of Competitive Status by Population, 19 states still have substantial legal barriers to competition, and another 20 only allow partial competition. When population is taken into account, roughly 70 percent of Americans live in a state that either allows only partial or no competition.

    [3] This list closely resembles Warren G. Lavey’s outline of the “five major public policies which accounted for much of the transition to regulated monopolies.” His list is as follows: “(1) efficient supply of services; (2) reasonable revenues; (3) extension of service to remote areas; (4) averaged rate structures; and (5) below-cost pricing for residential services” (Lavey 1987: 171).

    [4] This is exactly what began to happen under the government-regulated market anyway as new wireless and computerized inventions gradually eroded the Bell System’s technological advantages. Yet, various bureaucratic gaffes and outright regulatory prohibitions continued to limit the extent to which new technologies could have a substantial impact on industry-wide competition. The result was minor gains for rivals in new market segments, such as microwave communications and resale, but little else in the way of a serious challenge to AT&T’s hegemony.

    ——————————————————————————–

    The Cato Journal is published in the spring/summer, fall, and winter by the Cato Institute, 1000 Massachusetts Ave., NW, Washington, D.C. 20001-5403. The views expressed by the authors of the articles are their own and are not attributable to the editor, editorial board, or the Cato Institute. Printed copies of the Cato Journal may be ordered by calling 1-800-767-1241. Back issues are also available on the Cato Institute Web site: http://www.cato.org. Email comments or suggestions to subscriptions@cato.org.

  9. Francis King

    Antiplanner wrote:

    “Rail advocates are fond of claiming that Margaret Thatcher said, “A man who, beyond the age of 26, finds himself on a bus can count himself as a failure” — as if support from a fiscal conservative lends credence to their cause. In fact, there is no evidence Thatcher ever said this “or indeed shared the sentiment.””

    Eh, yes she did. She, and her associates, looked down on buses. She was responsible for two piece of ‘policy’ – the encouragement of car ownership and use, irrespective of the actual capacity of the roads – “The Car Owning Democracy” – and the selling off of council housing, in a quick subsidised fire sale, which has hurt poor people very badly – “The House Owning Democracy”.

    Antiplanner wrote:

    “Britain privatized much of its transit and deregulated intercity transportation in the 1980s, which perhaps makes British companies better tuned to competitive travel markets.”

    The main driver was a reduction in subsidies for the buses, and in some cases, more sensitivity to the needs of customers. But the area of the country where buses are doing the best, is coincidentally where the level of planning is the greatest – TfL. TfL plans the routes, and franchises the routes out. With a high level of subsidy.

    “But when run by private operators who have an incentive to fill them up, buses are much more energy-efficient than government-run trains.”

    Also, however, the means that the cheapest technology is used. This is not a major problem for intercity buses, but it does mean that city buses produce a large amount of muck from their exhaust pipes. Figure 3 of this:

    http://www.transportpolicy.org.uk/PublicTransport/AdvancedBuses/AdvancedBuses.htm

    ws wrote: “The problem with buses is that their schedules are difficult to understand, especially for tourists. With rail, you know exactly where it’s going. I think that contributes a lot to this sentiment between bus and rail.”

    This is very true in London. I always go by rail in London, because it is easier to understand.

    C. P. Zilliacus wrote:

    “In many European nations, on the other hand, the rails are owned by the government, and any qualified operator can run on them, subject to certain restrictions. That’s the case in the UK,”

    In the UK, companies are franchised. National Express has recently had its franchise taken off them, given their inability to provide a service.

  10. C. P. Zilliacus

    It is also interesting to note that the “old” Greyhound terminal shown in the Antiplanner’s post was (for a while) the site of the Washington, D.C. terminal of the long-defunct Washington, Baltimore and Annapolis Electric Railway (“WB&A”), an interurban which went out of business in 1935 after the Maryland General Assembly declined to grant it further tax subsidies in the form of property tax abatements.

  11. the highwayman

    Frank said: Fuck, highwayman. Six comments AND a fucking 20 page paper? Are you fucking retarded or what?

    THWM: More like inspired, by Mr.O’Toole.

  12. the highwayman

    C. P. Zilliacus said: It is also interesting to note that the “old” Greyhound terminal shown in the Antiplanner’s post was (for a while) the site of the Washington, D.C. terminal of the long-defunct Washington, Baltimore and Annapolis Electric Railway (”WB&A”), an interurban which went out of business in 1935 after the Maryland General Assembly declined to grant it further tax subsidies in the form of property tax abatements.

    THWM: In other words the government taxed them to death!

  13. The Antiplanner Post author

    ws wrote: “The problem with buses is that their schedules are difficult to understand, especially for tourists. With rail, you know exactly where it’s going. I think that contributes a lot to this sentiment between bus and rail.”

    So what you are saying is: our transit agencies are so incompetent that they can’t put together easy-to-understand schedules, and as a result taxpayers have to spend tens of billions of dollars per year building rail lines that don’t go where people want but are easier to understand.

  14. The Antiplanner Post author

    Francis King wrote, “Eh, yes she did.”

    As I said, there is no evidence that she said it, only allegations, and I provided a citation. Do you have any evidence that she said it? I found members of Parliament quoting her decades later, but that isn’t evidence, it is just more allegations.

    Quotes are commonly misattributed to people who are more famous than the people who originally said them. For example, a romance novelist named Rita Mae Brown said, “The definition of insanity is doing the same thing and expecting a different result.” But who has heard of her? So usually this quote is attributed to someone more familiar like Einstein.

  15. Francis King

    The wikiquote entry says this:

    “A man who, beyond the age of 26, finds himself on a bus can count himself as a failure.
    Attributed to her in Commons debates, 2003-07-02, column 407 and Commons debates, 2004-06-15 column 697. According to a letter to the Daily Telegraph by Alistair Cooke on 2 November 2006, this sentiment originated with Loelia Ponsonby, one of the wives of 2nd Duke of Westminster who said “Anybody seen in a bus over the age of 30 has been a failure in life”. In a letter published the next day, also in the Daily Telegraph, Hugo Vickers claims Loelia Ponsonby admitted to him that she had borrowed it from Brian Howard. There is no solid evidence that Margaret Thatcher ever quoted this statement with approval, or indeed shared the sentiment.”

    The quotation may have originated elsewhere, but the remark was widely attributed to her, without refutation, despite many public opportunities to do so. Her support of cars was well known, and was shared with many MPs in her party and cabinet. She is a well-educated lady. When she became prime minister, she read out the poem of St Francis of Assisi, from the renaissance.

  16. the highwayman

    ws wrote: “The problem with buses is that their schedules are difficult to understand, especially for tourists. With rail, you know exactly where it’s going. I think that contributes a lot to this sentiment between bus and rail.”

    THWM: Well buses don’t really attract tourists.

    ROT:So what you are saying is: our transit agencies are so incompetent that they can’t put together easy-to-understand schedules, and as a result taxpayers have to spend tens of billions of dollars per year building rail lines that don’t go where people want but are easier to understand.

    THWM: Billions? How big of a system are you trying to build?

    The F-line in SF is not that complicated.

  17. prk166

    ws:The problem with buses is that their schedules are difficult to understand, especially for tourists. With rail, you know exactly where it’s going. I think that contributes a lot to this sentiment between bus and rail.

    — I disagree. Most tourists here take neither. And the few times this is an issue, it’s not because it’s a bus but because the few trains lines, at least not on heavy rail commuter routes, that do exist tend to run frequently. For example, there are no shortages of tourists that take the 16th street shuttle in downtown Denver despite it “merely” being a bus. It runs up and down 16th street and runs practically all the time.

    Another way of looking at is this. If such a thing were true, that the lack of rail discourages tourists, how many Chicago tourists do not go to the Museum of Science and Industry because it lacks a stop on the El?

  18. Dan

    For example, there are no shortages of tourists that take the 16th street shuttle in downtown Denver despite it “merely” being a bus. It runs up and down 16th street and runs practically all the time.

    We were working at Coors Field today. We went downtown to get our equipment and drove (yes, drove) to the ballpark. The GF remarked that she enjoyed watching the tourists walk around outside the 16th corridor, looking for something to do. That is: they take the shuttle because along the bus corridor is the only stuff to do. And we were at the Wynkoop afterward, watching all the tourists get of the LR at Union Station.

    DS

  19. Pingback: The Antiplanner :: High-Speed Mythology :: http://ti.org/antiplanner

  20. Pingback: The Antiplanner :: Buses Beat Rail :: http://ti.org/antiplanner

  21. Pingback: California High-Speed Rail in Trouble » The Antiplanner

Leave a Reply