IP: Re: Here we go re internet telephones

[Dave Farber <farber@central.cis.upenn.edu>]

Normally I dont continue a thread this long but there is a reference to Hl's
papers at the end that is worth browsing. djf


Date: Mon, 12 Aug 1996 22:44:36 -0700 (PDT)
From: Hal Varian <hal@alfred.sims.berkeley.edu>


On Mon, 12 Aug 1996, Richard Jay Solomon wrote:


> >From: Hal Varian <hal@alfred.sims.berkeley.edu>
> >To: Dave Farber <farber@central.cis.upenn.edu>
> 
> >Internet providers and long-distance carriers.  My guess is that
> >this kind of thing will hasten the moves to impost local access charges
> >on Internet providers.  (See
> 
> Hal:
> 
> my guess is that this will hasten the day when <64kbps channels are sold at
> flat rates. The real cost (not price) of telephone calls worldwide is so
> incredibly low that the Internet isn't really any cheaper, just priced
> differently. After all, the Internet is merely a hostile overlay on the
> telephone system.


Hi, Richard.  Believe me, I understand very well that the marginal cost of
a telephone call is essentially zero.  But we're talking politics here,
not economics.  I stand by my claim that companies that sell long-distance
service via the Internet will give added impetus to the move to reclassify
Internet transport from a value added service to something else that has
to pay local access charges.  


> Do you think that General Motors pays 5 cents/minute for telephone calls?
> Some economists would be shocked to find out what the big guys actually
> negotiate for carriage, and AT&T still makes a huge profit on that.


Of course---one expects price discrimination in an industry with
positive fixed costs and zero marginal costs.  Take a look at the 
airlines.  (Or my paper on "Differential Pricing and Efficiency",
available at http://www.sims.berkeley.edu/~hal/people/hal/papers.html.)


Hal Varian, Dean           voice: 510-642-9980
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