B-School Blues - III

The 9th Circuit Court of Appeals has decided that cable companies are telecom companies, and that, in the interests of competition, they should be denied the fruits of their investments. They will now need to re-sell access to their lines, at cost, to their competitors. The WSJ (subscription required) has a nice, brief piece on the need to undo the mess from the 1996 Telecom Act. But my concern is what happened last night in marketing class.

Our "current events" discussion was about this topic, and almost all of the students, with the help of the teacher's NPR-induced coma, deicded that this was a good policy. One student suggested that the problem was excess capacity, which clearly isn't the case. Else we wouldn't be forcing Comcast to sell their lines at below-market rates.

Capping prices creates shortages. Simple micro-economics. Also, businesses develop projects with an estimate of the investment (cost of construction) vs. the return (price * market share). They calculate how much this project is worth to them over its lifetime. This ruling not only changes those lifetime calculations, forcing a scaling-back of investment, it also takes away the project's most profitable years. Of course, companies will build-out more slowly. Both economics and finance justify it. And one wonders if any of these guys had actually stayed awake during their finance courses.

This is a business school. People should know this stuff already. I don't expect non-finance students to know the nuances of IRR and compeitive advantage and so forth. I only know because I took capital structure over the summer. But we've all done internal rate-of-return and Net Present Value calculations in the core courses. There's no excuse for future MBAs either not to know basic economics, or the basics of their core courses. And even less excuse for the professor, regardless of her opinions, not to remind them of them.