TELECOM Digest OnLine - Sorted: Re: AT&T 'Family' Reunion: Merger Approved

Re: AT&T 'Family' Reunion: Merger Approved
31 Dec 2006 19:56:02 -0800

Fred Goldstein wrote:

> In V25I431, wrote,

> The company in question is "AT&T Inc.", formerly SBC
> Communications, formerly Southwestern Bell. It purchased the assets
> of AT&T and the brand name. It is the monopoly ILEC in 13 states ...

Ok, thanks for the clarification. But I still don't quite agree.

> Its network was built as a regulated utility, granted monopoly
> status. Nowadays there is a legal right to compete but that doesn't
> overcome the "natural monopoly" advantage of owning the
> ratepayer-funded physical plant. The Telecom Act of 1996 was a
> compromise, allowing the Bells into LD and other ventures in exchange
> for allowing competition, which explicitly included "wholesale"
> obligations. Now they want out of that part of the deal?

Well, let me comment on this "natural monopoly". Basically, it's net
worth has declined quite a bit and this must be recognized by
regulators. Here's why:

1) Wireless and cable competition. Very simply, it is not a "monopoly"
anymore so it should not be treated as such. (The past status doesn't
matter, "today" is what counts). Many people use cable and/or wireless
for their plain telephone service needs as well as advanced
communications. It appears this is growing.

2) The cost of entry to provide landline service was once enormous.
With fibre and modern techniques, it is relatively easy to do so. Our
cable company ran coax than later fibre quickly throughout our area.
(Indeed, cable TV needs some competition on their rates.) If the
traditional landline company raises its rates too much a cable company
will be able to come in and undercut it. They're doing that now.

3) Cost of landline maintenance: The regulated side comes with many
burdens. They must provide service to deadbeats and to all areas, even
those where there isn't much money to be made. So, the asset of an
established customer base, like deadbeats or grandparents with little
phone usage, isn't worth very much in the high tech world of big

Also, the old conduits and copper lines need maintenance, if the
copper is old the insulation may be rotting and worthless. So this
"asset" is of very limited value as well.

Let's remember that in the full regulated days the Bell System was
accepted as a steady safe stock. But that world no longer exists.
Investors expect big returns and landline companies, saddled with low
end regulated customers and burdens, have trouble meeting those

4) In essence, the Bell System world ended in 1983. Now it's
competitors want it both ways: They want to be free to enter into
Bell's old markets--even at a discount--but Bell still has to carry the
regulatory burden.

To put it another way, I suspect VOIP providers can't wait to offer
service in wealthy areas, but probably don't even enter poor areas.
Bell successors are forced to serve and take what comes along with it.

I like the commentators (like Newsweek) that suggested customers keep
a landline as an emergency spare if they get VOIP. That's bad for two
reasons: 1) it gives the Bell companies the scraps of little business
while the juicy profits go to the new guys. 2) It means the new guys
don't have to upgrade their systems to maximum reliability -- as the old
Bell companies offer* -- because they have old Bell being their safety
shield. That's not fair to Bell -- to maintain capacity for someone
ELSE's troubles.

*When there was a nasty power failure or other disaster, only the
traditional landlines kept working. The CO's had heavy construction
and diesel generators and batteries. The wireless and cable companies
had very little capacity for emergency traffic AND we learned they had
very little battery backup in their intermediate relay stations and
towers. (My cable has no such backup in power failures; my VOIP will
be dead in a power failure).

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