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# Local phone companies have monopolies on phone service

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Senior Manager
Joined: 18 Sep 2009
Posts: 353

Kudos [?]: 601 [0], given: 2

Local phone companies have monopolies on phone service [#permalink]

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08 Apr 2011, 00:35
00:00

Difficulty:

45% (medium)

Question Stats:

60% (01:30) correct 40% (00:54) wrong based on 20 sessions

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Local phone companies have monopolies on phone service within their areas. Cable television can be transmitted via the wires that are already in place and owned by the phone companies. Cable television companies argue that if the telephone companies were to offer cable service, these telephone companies would have an unfair advantage, because their cable transmissions could be subsidized by the profits of their monopolies on phone service.
15. Which of the following, if true, would ease the cable companies’ fear of unfair competition?
(A) In order to use existing telephone wire, telephone companies would need to modernize their operations, a process so expensive it would virtually wipe out all profit from their monopoly for the foreseeable future.
(B) If a phone company were to offer cable service within a particular area, it would have a monopoly within that area.
(C) The cost of television service, whether provided by cable or telephone companies, scales; that is, the total cost of transmission rises only marginally as more homes are added to the network.
(D) Cable programming that offers more channels is already available through satellite dish, but the initial cost of the dish is extremely high.
(E) Cable television will never be able to compete with the burgeoning video rental industry, especially as more homes now have video cassette recorders than ever did before.
[Reveal] Spoiler:
A

Please explain the answer . I donot have any clue that A would be the correct option
[Reveal] Spoiler: OA

Kudos [?]: 601 [0], given: 2

Director
Status: Impossible is not a fact. It's an opinion. It's a dare. Impossible is nothing.
Affiliations: University of Chicago Booth School of Business
Joined: 03 Feb 2011
Posts: 871

Kudos [?]: 399 [0], given: 123

Re: Local phone companies [#permalink]

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08 Apr 2011, 00:46
The reason cable companies will not have monopoly over the cable service is .......

Well if the upgradation to cable service network wipes out the profits of the cable company they will never upgrade. Hence "local" phone companaies have nothing to loose they can chill out

B - This provides a reason cable company will have monopoly and be predators in their niche and wipe out all the local telephone companies from the market. Out !

C - Since the cost of transmission rises only marginally then cables companies can deliver "more" at less cost. Another reason to be a market leader. Out !

D - This is going to affect both the local and cable companies. Hence the cost of the satellite dish is irrelevant to the argument. Out !

E - This choice does not prevent cable companies from beating the local phone companies. They can still be number 2 overall, video rental industry may have 51% market share and rest owned by cable companies - beating the telephone companies to their knees. Out !

Hence the answer is A.

Kudos [?]: 399 [0], given: 123

Senior Manager
Joined: 09 Feb 2011
Posts: 272

Kudos [?]: 218 [0], given: 13

Concentration: General Management, Social Entrepreneurship
Schools: HBS '14 (A)
GMAT 1: 770 Q50 V47
Re: Local phone companies [#permalink]

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08 Apr 2011, 03:47
We need to look for an option which in some way diminishes phone companies' profits or ability to subsidize cable transmission through their existing wires.
B doesnt negate the phone companies' profits- infact it emphasizes their monopoly.
C is actually neutal, it presents a fact which beneifts cable or phone companies both
D and E bring into picture Dish and Video Cassettes and dont talk about phone companies at all - hence irrelevant.
A says that to be able to provie cable transmission phone companies will have to incu an expense which is so high that either they will not do it at all, or their ability to subsidize will definitely be non-existent. This clearly is the option we are looking for - in that it talks of dimishing profiyts/ ability to subsidize of phone comapnies. Correct option.

Kudos [?]: 218 [0], given: 13

Senior Manager
Joined: 12 Oct 2009
Posts: 256

Kudos [?]: 228 [0], given: 4

Schools: Columbia, INSEAD, RSM, LBS
Re: Local phone companies [#permalink]

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08 Apr 2011, 09:17
A , coz when telephone companies will not have an undue advantage, due to the existing setup, then cable companies will be able to compete

Kudos [?]: 228 [0], given: 4

Re: Local phone companies   [#permalink] 08 Apr 2011, 09:17
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# Local phone companies have monopolies on phone service

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