"Open Access" and regulation of railroad freight rates.

[bobwilcox]

Well, it's not my theory, but rather the results of a study by a well known railroad economist. Kent Healy has probably done more statistical work on post WWII railroads than anyone.

Who is Kent Healy and what has he published?  Does his research consider the impact of PCs and the internet on productivity?

[VPayne]

Given that most of the Class I’s spend less than 15% of the operation budget on mainline ROW maintenance and expansions would it be proper to say that they are minimizing the return on the smaller revenue stream from the infrastructure portion of their business to maximize the larger revenue stream from the unit train and heavy haul portions of their business. They minimize the infrastructure return by running trains that operate slowly over the main and can no longer reasonably fit within sidings. If each train was simply charged its proportional share of the ROW usage and damage according to the speed ton factored model it would seem that intermodal movements would come out ahead. But the business is concerned with the movement that produces the overall highest rate of return on all aspects. Hence they are using their inherent advantage over those commodities that can not be easily moved by truck due to weighing out to earn the highest rate of return since we have entered the era of constrained capacity.

[JSGreen]

One big difference in trying to compare small airports with captive rail shippers - airports are owned by the local government, so there is always the option of ditching the current airline in favor of a new airline, e.g. a better comparison would be the franchise model of OA with small airports.

OK, now I am officially confused...wouldnt one advantage of OA be that a shipper could decide who is providing the shipping services, reguardless of who owns the rails?  Wether the asset is owned by a local government agency, or by another railroad, isnt the opportunity to chose the shipper one of the facets/goals of OA? 

[oltmannd]

Question for the experts - If railroads ran with the shorter faster model, would we even need massive classification yards?  Could a modern day Class I function today by eliminating massive centralized yards in favor of decentralized mini-yards, e.g. focus on unit trains/shuttle trains for all commodities, while keeping carload volumes at a 25 car + or - train length limit?  Wouldn't such decentralization enable a more customer oriented system?

I have read in past TRAINS various takes on that theme, and in some aspects the automated classification yard seems more of an albatross rather than an innovation.  Other so-called innovations, aka air brakes, seem to be well past their time in this day and age - aka holding on to out dated technologies seems to be an unintended consequence of monopolism.

Does "shorter-faster" = no hump yards?

Probably not.  The problem is  there are too many on-line O/D point pairs.  A railroad NS's size will have 90% of their business (including bulk and intermodal) moving in about 10,000 on-line point pairs.  The remaining 10% moves in another 50,000 on line O/D point pairs or so.

 NS's TOP plan is designed around the notion of eliminating as many intermediate classifications as possible by making as many "long haul" classifications as possible and by using many smaller yards to pre-block and block swap along the way.  Train size by design and in practice was irrelevant.  Big or little trains are neither "good" nor "bad".  The result was being able to close half of Conway and temporarily closing Knoxville.

If you could consolidate traffic down to a couple dozen nodes and make the car load business start to look like the intermodal network, then you could probably move away from hump yards.  BNSF has started to try to do this - but it is not cheap and easy to do.

[Anonymous]

   JSGreen wrote: "(Perhaps the aviation industry would be a better analogy for the Captive shipper discussuion, since there are lots of little airports with only one carrier serving them.) And there are parallels with OA, since there is no "Natural Monopoly" for Air Carriers. Yet, there seems to be lots of little towns (read, "Small SHippers") that pay higher prices or find alternate means to transport the commodities.(People)." You are right. Why compare railroads with a utility? It's like comparing apples with potatoes! When making an analogy, we should stick within the genre: transportation. How does RR-freight compare with air-cargo? Anybody know if you have to pay premium prices for air freight from a small airport as compared to a larger one? To use your analogy, JS, if I want to fly from Germany to London, I can drive to Frankfurt Airport and get a flight with almost any carrier. I wont get a ticket for under $100, but I'll get a direct flight into Heathrow or Gatwick, which in turn allows me every possible means of ground transportation into the city. There is a budget airline called Ryan Air which flies from Altenburg-Noebitz (a small town about 30 miles south of Leipzig) to London-Stansted. Both airports can only be reached by car or taxi, but I get a one-way flight for $20! Now, as far as I know, Ryan Air is the only airline to serve these airports (i.e. captive shipper), but the flight is one fifth of the price.

One big difference in trying to compare small airports with captive rail shippers - airports are owned by the local government, so there is always the option of ditching the current airline in favor of a new airline, e.g. a better comparison would be the franchise model of OA with small airports.

The utility comparison is apt because other energy companies, in the form of either utilities or merchant energy providers (e.g. 3rd party), are able to transport their product over the transmission lines of any other utility.  That is the gist of OA, and in the utility sector is showing gains in overall industry productivity.  Too bad we in the energy industry are now being saddled with expensive renewable mandates on top of the spector of CO2 taxation, such idiocies are not allowing us to show the value of OA in terms of customer pricing.

[MichaelSol]

I do not totally agree with you, even though what you've written may be accepted economic theory. I believe that, precisely by virtue of their size, the Class I RRs are able to offer efficient, inexpensive long distance intermodal service because they are able to pool their resources and economize both overhead and time. According to your theory, RRs would function better if there were more and smaller RRs.

This scenario brings us back to the days of the alphabet route, with time being lost to multiple interchanges and money being lost to increased accounting neccessary! I firmly believe that the root of the problem of customer dissatisfaction...

Well, it's not my theory, but rather the results of a study by a well known railroad economist. Kent Healy has probably done more statistical work on post WWII railroads than anyone.

I have seen the results of that study confirmed by a private study done on the BN ca. 1978 comparing its economic performance with those of its substantially smaller predecessors.

There are no doubt inefficiencies at a small scale due to increased accounting and multiple interchanges. However, to argue there are no inefficiencies of scale ....

 

[Flint Hills Tex]

futuremodal wrote:

"Question for the experts - If railroads ran with the shorter faster model, would we even need massive classification yards? Could a modern day Class I function today by eliminating massive centralized yards in favor of decentralized mini-yards, e.g. focus on unit trains/shuttle trains for all commodities, while keeping carload volumes at a 25 car + or - train length limit? Wouldn't such decentralization enable a more customer oriented system?"

I couldn't agree more wholeheartedly! Imagine a single SD70AC geared for higher speed at the head of a 25 - 30 car consist barrelling down the main at 100 mph... you could run more trains (higher density) with shorter turnaround time, no more crew changes in the middle of a run, better customer service, less dead time on freight sitting in a big yard, waiting to be classified, etc., etc. Of course, if your customer just wants the freight transferred from the port in LA to his distribution center in Chicago, then you are probably better off with the current mode of transportation.

JSGreen wrote:

"(Perhaps the aviation industry would be a better analogy for the Captive shipper discussuion, since there are lots of little airports with only one carrier serving them.) And there are parallels with OA, since there is no "Natural Monopoly" for Air Carriers. Yet, there seems to be lots of little towns (read, "Small SHippers") that pay higher prices or find alternate means to transport the commodities.(People)."

You are right. Why compare railroads with a utility? It's like comparing apples with potatoes! When making an analogy, we should stick within the genre: transportation. How does RR-freight compare with air-cargo? Anybody know if you have to pay premium prices for air freight from a small airport as compared to a larger one? To use your analogy, JS, if I want to fly from Germany to London, I can drive to Frankfurt Airport and get a flight with almost any carrier. I wont get a ticket for under $100, but I'll get a direct flight into Heathrow or Gatwick, which in turn allows me every possible means of ground transportation into the city. There is a budget airline called Ryan Air which flies from Altenburg-Noebitz (a small town about 30 miles south of Leipzig) to London-Stansted. Both airports can only be reached by car or taxi, but I get a one-way flight for $20! Now, as far as I know, Ryan Air is the only airline to serve these airports (i.e. captive shipper), but the flight is one fifth of the price. Go figure...

MichaelSol wrote:

"The current Class I railroads are far beyond the point of maximimum economies of scale, and are in fact substantially incurring diseconomies of scale. Those diseconomies of scale are paid for by eliminating redundancy and by punitive captive pricing. Neither of these practices produce social benefits but rather operate negatively on the overall economy. ...it is their very size that permits them to operate inefficiently and indeed encourages that result."

I do not totally agree with you, even though what you've written may be accepted economic theory. I believe that, precisely by virtue of their size, the Class I RRs are able to offer efficient, inexpensive long distance intermodal service because they are able to pool their resources and economize both overhead and time.

According to your theory, RRs would function better if there were more and smaller RRs. This scenario brings us back to the days of the alphabet route, with time being lost to multiple interchanges and money being lost to increased accounting neccessary!

I firmly believe that the root of the problem of customer dissatisfaction, whether due to overpricing or poor service, lies in accountability. The bigger a company gets, the less accountable each individual feels towards the customer. Let us take a look at the airlines: a similar process of intense competition with rate cutting led to multiple bankruptcies, which in turn led to mergers. Airlines like Delta became veritable behemoths, and the quality of customer service dropped exponentially (I've flown enough before and after to notice the difference). When you try to make a complaint, NOBODY seems to feel responsible, and you end up wasting your own time and money to effectively achieve NOTHING.

How can you improve accountablility towards your customers despite being a giant corporation? Well, I think that it has a lot to do with management. Since 2002 NS has been implementing so called Business Units, "with the goal of blending the customer focus and flexibility of a small railroad with the resources of a Class I carrier" (see Trains Magazine, July 2006, p.16). The result is that customers have a local partner, a real live, flesh and bone person, a face with a name to turn to with their concerns. This local partner is accountable, and customer satisfaction has risen. A Class I RR with a short line feel to it! What a great idea!

As to OA, I still feel that the best option short of government confiscation of ROW and the formation of a Federal Railway Department to manage operations (do we really want THAT? The RRs don't!) would be for the RRs to form a corporate consortium, pooling all of their ROW, dispatching, MOW, etc. The next step would be for the railway network (RailNet) management to set uniform operating rules and signalling. Then agree on a logistics concept How large will transloading facilities be? How far apart will they be? Who will have access to which facilities? Will each RR switch their own customers, or will they drop cars at a local yard, where a RailNet owned switching crew will make set-outs and pick-ups? Will deliveries be made via combi-traffic, i.e. train-truck? How should the RRs be billed for trackage usage: flat-rate, tons-per-mile, lump sum? Would any of this really lower prices for customers? Would it "produce social benefits"? Would it help railroading survive and thrive?

[Anonymous]

Now you are the federal government, charged by your constituents to maintain both railroad health and intramodal competitiveness.  What do you do?  Do you:

But suppose you are the federal government, and you are charged by your constituents to maintain lowest TOTAL AND OVERALL COSTS to the consumer. (Rembering that the Shippers are consumers of Intramodal services).  And, since we are supposing here, let us also suppose that you believe that the  Market is the best arbitrator of "best use of capital".

Do you
a) make rules that many believe will raise costs, because it will break an integrated transportation system up into different chunks (ie, MOW, Operating) which implies seperate management, overheads, and induced operating ineffeciencies?

b) let the market sort out the best way to do business, without government interference?

c) Do you confuse the issue by subsidizing railroads (with modern day equilivents of land grants) to try to support a company that Market Forces have deemed irrelelvant?

Let's go back to Econ 101 - Monopolies charge higher prices than competitive enterprises.  Our particular brand of capitalism empowers the (1) regulation or the (2) breakup of monopolies where competitive pricing is nonexistent.  Of #'s 1 and 2 above, regulation will probably result in higher overall costs than breakup.  Staggers eliminated some of the regulatory inefficiencies, but certainly not the most onerous aspects as they affect the customer base.  Staggers is thus partial regulation, where we get a hybrid monster embodying the worst of aspects of regulation and nonregulation.

The fallacy of your a) above is that you assume the breakup of an integrated company would result in more overhead.  Integrated rail companies already have middle management in charge of the various divisions - under simplified break up these middle managers would become the top managers, e.g. no increase in managerial layers.  The ridiculous greyhounds example of redundant crews working the same small customers is not complicit with market realities - the evolution of such moves would probably produce a single 3rd party entity that can handle not only the switcing of Railroad 1, but Railroads 2 and 3 as well, e.g. an increase in managerial efficiency.  And give us a break - "induced operating inefficiencies"?!  You mean like the inefficiency of deferred maintenance, a seeming inherent aspect of the integrated model?  The truth is, "induced operating inefficiencies" are part and parcel of the integrated model, because such inbred inefficiencies can be camaflouged within the entire mega corporation.  Under breakup, such tendencies toward inefficiencies would become more transparent, and would more likely be nipped in the bud before they become entrenched. 

Don't forget too - that if the current Class I oligarchy is broken in two from a vertical standpoint, opposition to further mergers would be mitigated, making it more likely that we'd end up with one or two regulated infrastructure companies and three or four transporter companies.  That's a lot more overhead reduction than we have now under the Big Six.

As for b) and c) above, can you say with a straight face that the current rail oligarchy is the result of no government meddling?  Of course not.  So is it logical to say "let the market determine railroad winners and losers" when the winners were actually recipients of massive government support while the losers did not recieve the same level of government support?  How about this - instead of letting the railroads of lesser government support go belly up, why not equalize the playing field by giving them the equivalent of the winners' level of government support?  Then and only then can you allow a market based decision on who the real winners and losers would be.

There's a reason Matt Rose is so worried about DM&E getting government aid - with it DM&E may prove to be a better run railroad than BNSF (with it's inherited land grants and court favoritism).  BN got off lucky when Milwaukee retrenched - if the trustee of the Milwaukee had chosen to forego the granger lines and keep operations of the PCE as they should have (instead of the other way around), it may have been BN staring down at the face of possible bankruptcy.  The government for all intents and purposes bailed out BN by pushing the PCE retrenchment while keeping the Milwaukee granger operations, despite all the evidence of PCE profitability vs granger unprofitability.

 

[MichaelSol]

Now you are the federal government, charged by your constituents to maintain both railroad health and intramodal competitiveness.  What do you do?  Do you:

But suppose you are the federal government, and you are charged by your constituents to maintain lowest TOTAL AND OVERALL COSTS to the consumer. (Rembering that the Shippers are consumers of Intramodal services).  And, since we are supposing here, let us also suppose that you believe that the  Market is the best arbitrator of "best use of capital".

Do you
a) make rules that many believe will raise costs, because it will break an integrated transportation system up into different chunks (ie, MOW, Operating) which implies seperate management, overheads, and induced operating ineffeciencies?

In 1961, Kent Healy offered an interesting financial analysis of railroad companies which opened a debate on the idea of "optimum size" -- the idea that there are not only economies of scale, but diseconomies of scale. He noted, in his study, that smaller railroads in America generated a better rate of return than larger railroads. Subsequent studies, and experience, have shown that the passage of time has not changed the validity of his observations. [Healy, Kent, The Effects of Scale in the Railroad Industry (Cambridge: Yale University Press, 1961)].

However, this is why anti-trust legislation is a sophisticated economic tool, and necessary to a healthy economic system, not merely a piece of antiquated populist 19th Century legislation.

Anti-trust theory proposes that companies don't like to actually compete. What a surprise. Accordingly, at each opportunity to do so, companies will utilize agreements or their pricing power where it exists to eliminate competition.

In order to avoid an economic system composed entirely of self-perpetuating monopolies, anti-trust regulation is part and parcel of our economic system, in order to preserve our economic system.

The comments above, about breaking up an "integrated transportation system." I think miss the mark. I have not seen anyone propose making the physical system less integrated. I have seen proposals that suggest that the current corporations operating that system are substantially past the optimum operating size. However, it is their very size that permits them to operate inefficiently and indeed encourages that result.

Naturally, and with the recent death of Milton Friedman, it is useful to note that our society is fortunate in that it can choose its economic system. We have pretty much agreed on a competitive system with a strong anti-trust component to guard against the natural tendencies to monopoly control. This is based less on grand political principles than a simple utilitarian argument that effective competition maximizes both efficiency of production and maximizes social benefits.

Anytime inefficiency is institutionalized either by monopolistic practices such as captive pricing, overly large corporate entities, or punitive regulation, society overall is damaged.

The current Class I railroads are far beyond the point of maximimum economies of scale, and are in fact substantially incurring diseconomies of scale. Those diseconomies of scale are paid for by eliminating redundancy and by punitive captive pricing. Neither of these practices produce social benefits but rather operate negatively on the overall economy.

Open Access proposals appear to me to be one, just one, of several alternative proposals to restore the positive societal benefits of capitalism in the rail industry to society. I happen to think enforcement of the Staggers Act would be appropriate, but alternatives are certainly interesting to think about, and offer a challenge as to recalling what the system is really all about.

c) Do you confuse the issue by subsidizing railroads (with modern day equilivents of land grants) to try to support a company that Market Forces have deemed irrelelvant?

Interesting. In 1893 "market forces" determined that the transcontinental railroads were "irrelevant." They were bankrupt. And that was after they got the land grants! They could not survive with enormous government subsidy. How much more irrelevant could they be according to this idea of "market forces"?

 

 

[JSGreen]

Now you are the federal government, charged by your constituents to maintain both railroad health and intramodal competitiveness.  What do you do?  Do you:

But suppose you are the federal government, and you are charged by your constituents to maintain lowest TOTAL AND OVERALL COSTS to the consumer. (Rembering that the Shippers are consumers of Intramodal services).  And, since we are supposing here, let us also suppose that you believe that the  Market is the best arbitrator of "best use of capital".

Do you
a) make rules that many believe will raise costs, because it will break an integrated transportation system up into different chunks (ie, MOW, Operating) which implies seperate management, overheads, and induced operating ineffeciencies?

b) let the market sort out the best way to do business, without government interference?

c) Do you confuse the issue by subsidizing railroads (with modern day equilivents of land grants) to try to support a company that Market Forces have deemed irrelelvant?


Lets not forget here that once upon a time, there was at least 3 (4?) rail roads that served the left cost at things the RR does best....big loads (big size, big volume, whatever...) for long distances.  The Markets and Money have worked to decrease this to only two.  Yes, some had land grant to get started, but the Land Grants served the desired purpose, which was to bridge the continent with a reliable transportation system which would open up areas for economic use...To seriously propose a similar government gift to industry of any nature, you would have to have an argument that would convince many, many people it would be in their best economic (or security) interest to do so.  The only argument proposed for Open Access has been that it would benefit some shippers...

Heck, many people believe that Amtrack should be a National  Priority, and that a long distance rail for travel is important enough to subsidize.  But the trend in Government is to try to cut it loose and make it independant (Similar to the post office...).  The seem to feel that Aviation is a good competitor and alternative to Rail, so it should operate on its own.  Last time I rode the train,  family of 4, San Diego to Washington, DC, no less, it was much more expensive than flying.  So I guess they are right about there being competition.  But right now, If I want to fly from someplace like Missoula, MT, to San Diego, It is so very much more expensive than flying from Washington, DC to LA.  So, should the government step in and give the smaller carriers which serve Missoula some subsidies?  In local markets, some  local governments have guarenteed a particulare amout of market to lure carriers in, but otherwise they are on their own....if the market doesnt supply the traffic, the carriers leave.  And there is no Natural Monopoly in the air industry, such as rail, so wouldnt you expect competition to lower prices?  There are at least 4 options for flying out of Missoula.  But the air fares are still more expensive, than DC to SD.  (Perhaps the aviation industry would be a better analogy for the Captive shipper discussuion, since there are lots of little airports with only one carrier serving them.)  And there are parallels with OA, since there is no "Natural Monopoly" for Air Carriers.  Yet, there seems to be lots of little towns (read, "Small SHippers") that pay higher prices or find alternate means to transport the commodities.(People).

[Anonymous]

 

This is where government oversight has failed miserably.  It would have been better to fix the problems of the loser railroad and thus keep the competitive balance, rather than "saving" the railroads by merging them into bigger and bigger monopoly sectors.  Because let's face it - a railroad being poorly run isn't necessarily a function of that railroad being a lesser property in comparison to others.  Case in point - NYC/Pennsylvania vs N&W/Chessie/et al.

     Say what?  *Fix* the loser railroad?  Reward a railroad that is getting beaten by the competition, so it make *compete* with the stronger competitor?  Did you have to read Hairrison Bergeron in high school.

I have no idea what that last sentence is doing in this forum.

That said, say you have three quasi-competitive parallel railroads.  One is the worst of the lot but has massive land grants to fall back on.  One got it's start with land grants, but needed to merge with the first one to survive.  The third has the best alignment but had no land grants - it either needs retroactive land grants (e.g. equal footing) to survive as an independent, or it either is merged and/or abandoned. 

Now you are the federal government, charged by your constituents to maintain both railroad health and intramodal competitiveness.  What do you do?  Do you:

1.  Let the one with arguably the best alignment but worst financial standing fail while the other two merge, thus guaranteeing financial health of the sole remaining merged railroad but eliminating all hope of intramodal competition?

2.  Provide a form of federal aid to the at risk railroad equivalent to the land grants it's merged competitor inherited, thus guaranteeing health to both railroads (but of course lesser health to the merged line than if they had sole control of the territory) and some intramodal competition

3.  Make all three railroads merge, then break them up into two new and improved competitors (e.g. now both will have access to all major rail markets and the best routings).

4.  Take the worst of the three (the one with the massive land grants at hand), divvy it up between the two better lines (aka akin to Conrail being divvied up to NS and CSX) including dividing up the unsold land grants to allow supplemental financial health for the remainders?

5.  Nationalize the whole lot?

6.  ___________________?

[Murphy Siding]

 

This is where government oversight has failed miserably.  It would have been better to fix the problems of the loser railroad and thus keep the competitive balance, rather than "saving" the railroads by merging them into bigger and bigger monopoly sectors.  Because let's face it - a railroad being poorly run isn't necessarily a function of that railroad being a lesser property in comparison to others.  Case in point - NYC/Pennsylvania vs N&W/Chessie/et al.

     Say what?  *Fix* the loser railroad?  Reward a railroad that is getting beaten by the competition, so it make *compete* with the stronger competitor?  Did you have to read Hairrison Bergeron in high school.

[Anonymous]

   But it can not be said that railroads are not competitive.  They compete with many other forms of transportation.  In some areas, they compete very well.  In other areas, they compete poorly.

That's where I differ.  I believe that each mode has a particular niche not seen in the other modes, said modes will gravitate their energies toward maximizing that niche, and thus the only competition in this particular niche is intramodal.  I have pointed this out time and again to no avail, because some folks here are just stuck on the notion that "trucks are competition for rail" etc, without the slightest realization of the fallacy of such a blanket statement. 

Intramodally, railroads do compete somewhat (mostly duopoly, the rest triopoly or better) between the major terminals - all major ports, cities such as Chicago and St. Louis - but line haul customers tend to be stuck with the connection they got.  That's why all overseas importers are free of rail captivity, while most US producers are physically captive to one Class I (even if the GAO only counts R > VC over 180% as captive).  It is in these intergeographical locales that the opportunities for "innovate or die" are lost, and where OA in some form would be far superior to harsher regulation enforcement.

In addition, they also compete against each other in a very high stakes game - the buyout.  Railroads that fail to be economically productive are at risk of being bought out by another railroad.  Sure, there are some railroads that get bought out or merge even though they are doing very well for themselves.  In such cases, the parties involved see a synergy that can be produced.  But a poorly run railroad is usually not getting bought out because of possible synergistic effects.  Instead, it is probably a last resort prior to declaring bankruptcy.

This is where government oversight has failed miserably.  It would have been better to fix the problems of the loser railroad and thus keep the competitive balance, rather than "saving" the railroads by merging them into bigger and bigger monopoly sectors.  Because let's face it - a railroad being poorly run isn't necessarily a function of that railroad being a lesser property in comparison to others.  Case in point - NYC/Pennsylvania vs N&W/Chessie/et al.

Have railroads been innovative?  Of course they have.  Look at the variety of cars that have been produced lately to meet shipper's needs.  Look at the machines that have been developed to automate trackwork / MoW.  Look at classification yard automation.

Question for the experts - If railroads ran with the shorter faster model, would we even need massive classification yards?  Could a modern day Class I function today by eliminating massive centralized yards in favor of decentralized mini-yards, e.g. focus on unit trains/shuttle trains for all commodities, while keeping carload volumes at a 25 car + or - train length limit?  Wouldn't such decentralization enable a more customer oriented system?

I have read in past TRAINS various takes on that theme, and in some aspects the automated classification yard seems more of an albatross rather than an innovation.  Other so-called innovations, aka air brakes, seem to be well past their time in this day and age - aka holding on to out dated technologies seems to be an unintended consequence of monopolism.

[Datafever]

So, they could sell technology to unregulated markets?

Sell technology?  I guess that is what you could call it.  They licensed their patents.  It was their restrictive licensing agreements (mostly with RCA) that originally caused the DOJ to file an anti-trust lawsuit against AT&T/Bell Labs.  That lawsuit was settled in 1956 and resulted in AT&T being forced to license their patents to all interested parties.  In addition, AT&T was prevented from selling computers.

There was a subsequent DOJ lawsuit that was settled in 1982 that caused the breakup of the Bell system, but allowed AT&T to re-enter the computer arena.

From a business standpoint, AT&T did a very poor job of capitalizing on its patents, even though at its peak, it made about $300 billion a year in today's dollars.

[oltmannd]

The "Ma Bell" monopoly raises an interesting question:

Since their rates were regulated to provide a fair return to the owners, why did they did they invest in R&D?  What was in it for them?

They recognized early on that system capacity was going to be a major problem.  Bell Labs was founded to pursue the technology that would expand capacity and automation for both local and long distance switching.  Even a monopoly will recognize revenue constraints and seek to remove them.

Fortunately for us, Bell Labs also included a couple of researchers just to do ivory tower research, and it paid off handsomely.

Amen!  But why inovate?  Why not just build out more of the same.  There was nothing that wasn't scalable about rotarty swithes.  They took up more space, but being regulated, they could pass the costs along.

Good question.  Ma Bell faced a lot of resistance in their automation process.  Switch automation put a lot of people out of work.  So why automate, and once automated, why continue to seek improvements?

For Bell Labs the answer was easy.  They established themselves as major players in the electronics revolution, and they had the excellent opportunity of actually being able to implement their ideas in an industrial/commercial setting.  Other players could only invent and try to sell to other customers.  Bell Labs could invent and implement, thereby proving the efficacy of their research.

So, they could sell technology to unregulated markets?

[Datafever]

And finally, how is it that Bell got away with charging more for touch tone all those years when it was cheaper for them?  Did they snooker the regulators?  I thought regulated rates were supposed to be cost based?  Maybe more Big John?

WAG - The regulators recognized that the investment of development and installation of the new technology needed to be cost-recovered by higher fees.

[Datafever]

The "Ma Bell" monopoly raises an interesting question:

Since their rates were regulated to provide a fair return to the owners, why did they did they invest in R&D?  What was in it for them?

They recognized early on that system capacity was going to be a major problem.  Bell Labs was founded to pursue the technology that would expand capacity and automation for both local and long distance switching.  Even a monopoly will recognize revenue constraints and seek to remove them.

Fortunately for us, Bell Labs also included a couple of researchers just to do ivory tower research, and it paid off handsomely.

Amen!  But why inovate?  Why not just build out more of the same.  There was nothing that wasn't scalable about rotarty swithes.  They took up more space, but being regulated, they could pass the costs along.

Good question.  Ma Bell faced a lot of resistance in their automation process.  Switch automation put a lot of people out of work.  So why automate, and once automated, why continue to seek improvements?

For Bell Labs the answer was easy.  They established themselves as major players in the electronics revolution, and they had the excellent opportunity of actually being able to implement their ideas in an industrial/commercial setting.  Other players could only invent and try to sell to other customers.  Bell Labs could invent and implement, thereby proving the efficacy of their research.

[oltmannd]

The "Ma Bell" monopoly raises an interesting question:

Since their rates were regulated to provide a fair return to the owners, why did they did they invest in R&D?  What was in it for them?

They recognized early on that system capacity was going to be a major problem.  Bell Labs was founded to pursue the technology that would expand capacity and automation for both local and long distance switching.  Even a monopoly will recognize revenue constraints and seek to remove them.

Fortunately for us, Bell Labs also included a couple of researchers just to do ivory tower research, and it paid off handsomely.

Amen!  But why inovate?  Why not just build out more of the same.  There was nothing that wasn't scalable about rotarty swithes.  They took up more space, but being regulated, they could pass the costs along.

[Datafever]

Please, oh please, get off of your high horses and stop bickering about "Ma Bell"! I thought that this thread was about railroading.

I'm sorry, I didn't realize that I was on a high horse.  Nor did I feel that I was bickering.

But you are correct, this thread is about railroading.  As near as I can tell, futuremodal is trying to establish that innovation only happens in a competitive environment.  (FM: If I am putting words in your mouth, I apologize.)  If that point is established, then the next step is to conclude that since railroads are not competitive, then they are not innovative.

But it can not be said that railroads are not competitive.  They compete with many other forms of transportation.  In some areas, they compete very well.  In other areas, they compete poorly.

In addition, they also compete against each other in a very high stakes game - the buyout.  Railroads that fail to be economically productive are at risk of being bought out by another railroad.  Sure, there are some railroads that get bought out or merge even though they are doing very well for themselves.  In such cases, the parties involved see a synergy that can be produced.  But a poorly run railroad is usually not getting bought out because of possible synergistic effects.  Instead, it is probably a last resort prior to declaring bankruptcy.

Have railroads been innovative?  Of course they have.  Look at the variety of cars that have been produced lately to meet shipper's needs.  Look at the machines that have been developed to automate trackwork / MoW.  Look at classification yard automation.

[Datafever]

The "Ma Bell" monopoly raises an interesting question:

Since their rates were regulated to provide a fair return to the owners, why did they did they invest in R&D?  What was in it for them?

They recognized early on that system capacity was going to be a major problem.  Bell Labs was founded to pursue the technology that would expand capacity and automation for both local and long distance switching.  Even a monopoly will recognize revenue constraints and seek to remove them.

Fortunately for us, Bell Labs also included a couple of researchers just to do ivory tower research, and it paid off handsomely.

[oltmannd]

The "Ma Bell" monopoly raises an interesting question:

Since their rates were regulated to provide a fair return to the owners, why did they did they invest in R&D?  What was in it for them?

Was it that the excess profits could be plowed back into the company as R&D spending, so better to do that than have the gov't cut the rates?  RRs did a lot of capital investment with their "excess profits" that might not have occurred otherwise.  The RDG built a huge coal processing plant in the waning days of anthracite and the DL&W gold plated their RR with excess profit (OK, maybe not gold, but concrete)

Was it that some of the results of the R&D could be marketed and sold outside of the regulated environment?  Sort of like RRs using their natural resource subsidiaries to keep the RR afloat.

Was it that the inovations could be brought on line faster than the regulators could chop the rates so that profitability was enhanced?  Big John anyone?

And finally, how is it that Bell got away with charging more for touch tone all those years when it was cheaper for them?  Did they snooker the regulators?  I thought regulated rates were supposed to be cost based?  Maybe more Big John?

[Flint Hills Tex]

Please, oh please, get off of your high horses and stop bickering about "Ma Bell"! I thought that this thread was about railroading. And in case you haven't noticed, most of the other participants have dropped out.

As for pricing after deregulation, in Germany, my telephone bill has doubled, after accounting for inflation, even though I've got one of the lowest rates in the industry for a land-line based hookup.

As for innovation, I believe that the railroading renaissance as well as the great strides made in the broadcasting industry would have brought enough innovation, even if they wouldn't have broken up AT&T. How about UP doing all their dispatching from Nebraska and Texas? Don't tell me that wouldn't have happened if the government had left AT&T alone!

[daveklepper]

Again, a lot depends on who is running the monopoly and what the regulators who have government supervision do in their regulation.   Ma Bell did very well by the USA.   They did operate a research lab (actually several) that eventually benefited many industries.  Along with RCA, who had a near monopoly on broadcast equipment, Western Electric's Laboraties that became part of the Bell Lab System, perfected talking pictures.  If fact, the entire public address industry today, uses technology first developed by people associated one way or another with AT&T.   Even the deciBel was an AT&T innovation in thinking and mathematics.

 

Similarly, Cleveland Railways as a streetcar and bus company provided notibly better service at lower cost than would have occured if more than one company operated in the city.   New York had some interesting competition between the IRT and BMT, and then the city owned and subsidized IND later, but anyone will tell you the BMT was the best of the companies in terms of equpment comfort and general service, although the IRT covered far more neighborhoods and probided the most extensive system.   Streetcar service in New York was hampered by a forced low fair and punitive regulations, and still there was competition.

 

The real question of open access is what would the future bring?  Who would make the investments to increase capacity and insure good repair?

 

A wise prophet once declaired:   Bewair, you might get what you are asking for!

[Datafever]

Oh, I forgot to mention.  Bell Labs did an awful lot of ivory tower research too.  But that's another discussion...

[Datafever]

Would you at least agree that there is a difference between the creation of a basic invention, and subsequent adaptations to that invention in order to optimize it's commercial value?  If so, then what is it that turns a basic invention into a marketplace player?  Somewhere in the process, there has to be a certain amount of "fear" that forces minds to manipulate the base item into the optimized selling item. 

There's two areas that might force this "fear" in my view - (1)competition, aka survival of the fittest, or (2) fear of government intervention or repression (aka, fear of being "Enronized" before a Senate panel).

Otherwise, research labs of monopolies are basically a collection of pet projects or politically correct PR schemes, kind of like university research labs. 

The other thing to mention here is sales and marketing innovations - you get such in competitive arenas, not in monopolistic fiefdoms.

Sure, there is usually a big gap between "ivory tower" idealists and practical application.  You've probably heard of Einstein's Theory of Relativity.  Can you think of any ways in which that theory has been implemented in a practical application?  If you can't, don't worry because there really aren't too many practical applications of the theory in the commercial world.  One such application is in the GPS system which has to take relativistic effects into account in order to obtain optimal accuracy.

Bell Labs was certainly not an "ivory tower" research lab.  Besides the development of the transistor and the LED, Bell Labs also developed the UNIX operating system, the C programming language, electronic speech synthesizers, electronic music, handheld calculators, and even computerized switching systems for telephone traffic.  The list of inventions that resulted in practical applications goes on and on.

Of course, one could say that they produced all of these innovations in an extremely competitive environment.  You see, AT&T agreed to give up their monopoly so that they could be allowed to compete in the computer field.  And I can say with a high level of confidence that our world would be much worse off (in terms of electronic technology) if it had not been for the innovations developed at Bell Labs.

Do I agree that "fear" is the only source of innovation?  I would have to say no.  Is it the most prevalent source of innovation?  Probably, but I can't say that I am really qualified to answer that question as I have very little experience in working with monopolies.

[Anonymous]

You seem to support the notion that current innovations in telcoms all or mostly have their roots in Bell Labs, and the current atmosphere of telcom innnovation would actually have been better off under the Ma Bell monopoly.  And by inference you may also support the notion that monopolies at the very least do not inhibit innovation, and at best are better suited than competitive industries to develop innovations.

Is that a fairer assessment of your POV on the whole monopoly vs competitive arguement?

Current innovations in telcoms all or mostly have their roots in Bell Labs?  No, I don't think that would be an accurate statement.  Wireless technology has been dominated by Motorola, so much so that one could almost say that Motorola has almost had an effective monopoly.  (At one time, I worked for a competitor of Motorola's.  We had a better product at a better price and hit the marketplace months before Motorola did, but Motorola had the name and the marketing power.)

I can't say that the breakup of Ma Bell produced any technological innovations at all in terms of long distance landline service.  (I don't care about local landline service, as that remained a monopoly).  What did Sprint or MCI bring to the game?  Better off?  I can't say that.  Worse off?  I can't say that either.

What are some innovations that have gained inroads?  Caller ID, fiber optics, ISDN, DSL, personal voicemail, etc.  How many of those would not have been innovated without the breakup?  Well, Caller ID was developed prior to the breakup.  Fiber optics was first tested for telephone service in the late 1970s.  ISDN was a protocol developed by a standards committee (CCITT, now ITU) and eagerly implemented by the baby Bells. 

I support the notion that monopolies do not necessarily inhibit innovation.  Can examples be found of monopolies that were pretty bad?  Yes, I dare say so.  In your original statement, you included examples of two monopolies.  I only took issue with one of them.  The breakup of Standard Oil happened well before my time so I have very little insight into that situation.  From what I have read, Standard Oil was the worst of what can happen in a monopolistic situation.  Conversely, Ma Bell could very well have been the best of what can happen.

I would like to add something here.  I am not anti open access.  If you have read my posts on the subject, then you know where I stand, and why I have taken that position.  If you feel like answering any of the many questions that I have raised, I'm listening.

Would you at least agree that there is a difference between the creation of a basic invention, and subsequent adaptations to that invention in order to optimize it's commercial value?  If so, then what is it that turns a basic invention into a marketplace player?  Somewhere in the process, there has to be a certain amount of "fear" that forces minds to manipulate the base item into the optimized selling item. 

There's two areas that might force this "fear" in my view - (1)competition, aka survival of the fittest, or (2) fear of government intervention or repression (aka, fear of being "Enronized" before a Senate panel).

Otherwise, research labs of monopolies are basically a collection of pet projects or politically correct PR schemes, kind of like university research labs. 

The other thing to mention here is sales and marketing innovations - you get such in competitive arenas, not in monopolistic fiefdoms.

[Datafever]

You seem to support the notion that current innovations in telcoms all or mostly have their roots in Bell Labs, and the current atmosphere of telcom innnovation would actually have been better off under the Ma Bell monopoly.  And by inference you may also support the notion that monopolies at the very least do not inhibit innovation, and at best are better suited than competitive industries to develop innovations.

Is that a fairer assessment of your POV on the whole monopoly vs competitive arguement?

Current innovations in telcoms all or mostly have their roots in Bell Labs?  No, I don't think that would be an accurate statement.  Wireless technology has been dominated by Motorola, so much so that one could almost say that Motorola has almost had an effective monopoly.  (At one time, I worked for a competitor of Motorola's.  We had a better product at a better price and hit the marketplace months before Motorola did, but Motorola had the name and the marketing power.)

I can't say that the breakup of Ma Bell produced any technological innovations at all in terms of long distance landline service.  (I don't care about local landline service, as that remained a monopoly).  What did Sprint or MCI bring to the game?  Better off?  I can't say that.  Worse off?  I can't say that either.

What are some innovations that have gained inroads?  Caller ID, fiber optics, ISDN, DSL, personal voicemail, etc.  How many of those would not have been innovated without the breakup?  Well, Caller ID was developed prior to the breakup.  Fiber optics was first tested for telephone service in the late 1970s.  ISDN was a protocol developed by a standards committee (CCITT, now ITU) and eagerly implemented by the baby Bells. 

I support the notion that monopolies do not necessarily inhibit innovation.  Can examples be found of monopolies that were pretty bad?  Yes, I dare say so.  In your original statement, you included examples of two monopolies.  I only took issue with one of them.  The breakup of Standard Oil happened well before my time so I have very little insight into that situation.  From what I have read, Standard Oil was the worst of what can happen in a monopolistic situation.  Conversely, Ma Bell could very well have been the best of what can happen.

I would like to add something here.  I am not anti open access.  If you have read my posts on the subject, then you know where I stand, and why I have taken that position.  If you feel like answering any of the many questions that I have raised, I'm listening.

[Anonymous]

It is a subjective analysis, one in which "what would have been" cannot be objectively scrutinized due to the lack of a crystal ball.  Still, we do have logical dissemination, but that has never flown on this forum.

I will agree that there does indeed to be a difference of opinion as to what "logical dissemination" produces on this forum.  There is also a significant difference of opinion as to exactly who is being hard-headed and stubborn.

So go ahead, believe with all your heart that America would be better off if we had no interindustry competition in any sector.  Competition is bad for America.  Whatever.........

Monopolies rule!

All hail the great and wonderful Monopoly!

Well, I suppose that turnabout is fair play.  Just as I used hyperbole to suggest that you were claiming a lack of technological innovation under Ma Bell's monopoly, you are now using it to suggest that since I disagree with your claims that I must therefore be wholeheartedly in support of monopolies.  You may not have noticed, but I did apologize to you.

Well, then I will have to clarify with due apologies. 

You seem to support the notion that current innovations in telcoms all or mostly have their roots in Bell Labs, and the current atmosphere of telcom innnovation would actually have been better off under the Ma Bell monopoly.  And by inference you may also support the notion that monopolies at the very least do not inhibit innovation, and at best are better suited than competitive industries to develop innovations.

Is that a fairer assessment of your POV on the whole monopoly vs competitive arguement?

[Datafever]

It is a subjective analysis, one in which "what would have been" cannot be objectively scrutinized due to the lack of a crystal ball.  Still, we do have logical dissemination, but that has never flown on this forum.

I will agree that there does indeed to be a difference of opinion as to what "logical dissemination" produces on this forum.  There is also a significant difference of opinion as to exactly who is being hard-headed and stubborn.

So go ahead, believe with all your heart that America would be better off if we had no interindustry competition in any sector.  Competition is bad for America.  Whatever.........

Monopolies rule!

All hail the great and wonderful Monopoly!

Well, I suppose that turnabout is fair play.  Just as I used hyperbole to suggest that you were claiming a lack of technological innovation under Ma Bell's monopoly, you are now using it to suggest that since I disagree with your claims that I must therefore be wholeheartedly in support of monopolies.  You may not have noticed, but I did apologize to you.

[Anonymous]

Wireless needed customers. AT&T had the monopoly on households until dereg.  If you do some research, you will see that's when cell phones took off.  They got 'em after deregulation.  I suspect you know quite a few people who have dispensed with land lines altogether in favor of cell technology and wireless broadband.

Okay, you are going to have to explain this a little bit slower cuz I seem to be stuck on stupid.  Ma Bell had a monopoly on households?  So are you trying to say that people could not buy cell phones because they had a landline phone?  As ownership of a cell phone has never (to my knowledge) been connected with ownership of a landline phone, I'm having a little trouble following your logic here.

And since call phones "took off" before dereg, what does that imply?

If I find other things that "took off" at about the same time, can I claim that the Ma Bell breakup was responsible for that too?  (Say, didn't Microsoft release its first version of Windows back then?)

BTW, it is probably just me, but I do not know of any households that do not have a landline phone.  I do know of some that don't have cell phones though.

You do know that cell companies access land lines, right?

Look, let's just drop it.  Most of the retorts on this particular subject are seemingly convinced that telecommunications were better under the Ma Bell monopoly than under the current competitive dereg.  I'm not sure why that is, other than some will cling to Ma Bell as an example of why monopolies are a benefit to society and not a curse, ergo the current railroad monopoly aspects are also a benefit.  It is a subjective analysis, one in which "what would have been" cannot be objectively scrutinized due to the lack of a crystal ball.  Still, we do have logical dissemination, but that has never flown on this forum.

So go ahead, believe with all your heart that America would be better off if we had no interindustry competition in any sector.  Competition is bad for America.  Whatever.........

Monopolies rule!

All hail the great and wonderful Monopoly!