By Steven Pearlstein
Normally, I take a skeptical view of corporate mergers and
acquisitions, from the viewpoint of both consumers and
shareholders. But in the telecom industry, deregulation and
technological change have created so much overcapacity, driven prices
so low and so thoroughly transformed the services being sold that
consolidation is now both inevitable and desirable.
As far as we can tell, the future belongs to companies that build
efficient networks delivering a bundle of services -- voice, data,
video, Internet access -- to households and businesses. In that
digital world, the traditional distinctions between local and
long-distance, voice and data, Internet and television are
Right now, there are four types of companies competing to build such
networks and deliver these services: phone, cable, ground-based
wireless services (cell phone networks) and wireless service that
comes from satellites. For regulators, the key question going forward
is whether the public is best served by allowing the companies that
have built such networks to monopolize the services that run over
them. Or should they be required to allow competitors access to
certain parts of their networks, at a reasonable price, to ensure a
more competitive market?
Over the next several years, an expensive and high-stakes lobbying and
legal war will be fought over just those questions. And the first
battle is likely to be the antitrust review of the SBC's proposed
purchase of AT&T and Verizon's of MCI.
First, some history. One of the premises of the 1996 Telecom Act was that a
Baby Bell like Verizon would have to lease out, at a reasonable price, its
local wires and switches to competitors -- in particular, Baby Bells from
other regions and long-distance companies offering combined local and
This competition among phone giants never really materialized. The
Baby Bells effectively entered into a nonaggression pact, refusing to
enter one another's territory. Meanwhile, in Washington, the Bells
launched an endless series of legal attacks on the rules for pricing
the network access that eventually forced even giants like AT&T and
MCI out of the business, and into the arms of SBC and Verizon.
Now, however, regulators have one last chance to create genuine
competition among phone companies. As a condition for approving their
purchases of companies they were supposed to compete against, SBC and
Verizon should be required to negotiate a contract allowing each to
hook into the other's local network on reasonable terms. In addition,
whatever deal they come up with would have to be offered to the other
two Baby Bells, Qwest and BellSouth.
This process wouldn't immediately require the Baby Bells to compete on
one another's turf, as they promised to do in the past and promptly
forgot about. But once the Baby Bells finish locking up the
traditional phone markets in their home territory, which they are well
on the way to doing, they will probably have no choice but to go
elsewhere to meet growth targets. These agreements would open the door
to such competition.
There is recent precedent for such a requirement involving another
government-sanctioned monopoly, a cable company. As a condition for
approving their merger, the Federal Trade Commission required Time
Warner to allow its cable customers to choose an Internet service
other than America Online. And one would hope that the FTC would
extend a similar open-access requirement to Comcast if it wins its bid
to acquire parts of bankrupt Adelphia.
For the past decade, the Baby Bells have talked incessantly of the
glory of competitive markets while using their power and guaranteed
profit to try to make sure they had no serious competitors. Now that
wireless and cable competitors have come along and broken their local
phone monopolies, they are scrambling to get into everyone else's
businesses. Before they are allowed to buy their way in, we ought to
force them to share the local networks they built at their customers'
risk with their customers' money, just as Congress intended.
Steven Pearlstein can be reached at email@example.com.
Copyright 2005 The Washington Post Company
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