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Technology Stocks : George Gilder - Forbes ASAP
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To: JMD who wrote (1367)4/29/1999 8:10:00 PM
From: Morgan Drake  Read Replies (1) of 5853
 
OK. I'll take a shot at showing you the $$$.

Let's take hospitals as an analogous situation.

I take my kid to the hospital for xrays because I suspect he might have fractured his arm. The hospital bills me $400 for 1 hour's time and 4 xrays. Now I say wait a minute, no way did that procedure cost $400.

So what's going on here? Well, in my opinion what is going on is that the marginal cost of the treatment was probably less than $50. The other $350 turns out to be an allocation of the hospital's annual fixed overhead to my kid's visit. Think about it. The plant, the staff, the insurance, etc., etc. It's gotta be recovered somehow.

My guess is that the big fiber players will end up charging a flat monthly rate like AOL. That's how they'll recover their fixed costs. That also will probably be how prospective new entrants will be deterred. They won't be able to get financing to lay billion dollar underseas/underground cable. Additionally, all the easy rights of way (rail, power lines, gas lines) will have been taken.

I guess that's why there haven't been any new national cable companies in quite some time, or regional/local ones for that matter. Rest assured that if the cable tv model produces good cash flow, the big IP fiber guys will figure an analogous way to may money.

Morgan
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