TELECOM Digest OnLine - Sorted: MCI and AT&T Leave Little Guys Behind

MCI and AT&T Leave Little Guys Behind

Marcus Didius Falco (
Sat, 05 Mar 2005 03:11:14 -0500

By Yuki Noguchi

Thursday, March 3, 2005; Page E01

Lobbying against the regional Bells is about to become a lonely cause
for XO Communications Inc. of Reston.

For years, XO, MCI Inc. and AT&T Corp. were more or less comrades
fighting regional phone giants such as Verizon Communications Inc. and
SBC Communications Inc. to open up local markets and get access to the
Bells' facilities. Now MCI and AT&T plan to merge with the very
regional phone giants they lobbied against -- Verizon and SBC.

XO is a relatively small company, with about $1 billion in annual
revenue and 5,000 employees. The much larger AT&T and MCI bankrolled
many of the battles over issues central to the local phone industry
and funded advocacy groups to back them up.

But now, SBC is buying AT&T for $16 billion, and Verizon has agreed to
buy MCI for $6.75 billion. Qwest Communications International Inc.,
another regional phone company, is also bidding for MCI. That dries up
a huge chunk of funding and leaves XO among the handful of small
telecommunications companies that aren't part of the growing Baby Bell
phone empire.

"It's going to be a big decrease in funding when they walk away," said
Heather B. Gold, senior vice president for government relations for XO,
which opened a regulatory office in the District after it acquired another
independent telecom company, Allegiance TelecomInc., last year. "We will
have to build more coalitions [among the smaller companies] to replace the
single or double source of support," she said.

XO didn't always have the same interests as AT&T and MCI. XO doesn't
sell to residential consumers, for example, and owns its own network
in most major cities. It leases high-capacity lines used for business
Internet connections.

AT&T and MCI relied on regulations that allowed them to lease local
lines from the regional companies at discounted rates and resell local
phone service under their own brands. AT&T and MCI fought vigorously
to keep those discounted rates in place, but they lost the battle and
were forced to pull back from the consumer phone business.

This year AT&T and MCI won't be with XO but against it as XO fights
approval of the mergers in front of the Federal Communications

"We plan to lobby against these mergers as anticompetitive," Gold said.

The mergers come at a time when companies like XO are already weakened
by other business dynamics. XO has been in and out of bankruptcy
protection, and in the Washington area alone, dozens of
telecommunications companies collapsed with the technology crash that
started in 2000.

Companies like Teligent Inc., E.spire Communications Inc., Net2000
Communications Inc., and WinStar LLC -- which were never lobbying
powerhouses to begin with -- fell into bankruptcy and off the radar

In recent years, AT&T actively funded advocacy groups such as Voices for
Choices, which paid for television and newspaper advertisements against
Bell-backed legislation that would have hurt the companies trying to
compete in the local markets. It also funded studies for third-party
telecommunications groups and associations.

Many of AT&T's hired guns are expected to stop lobbying for non-Bell
companies when AT&T becomes part of SBC, according to industry

Those include the LawMedia Group, a strategy group headed by former
House Judiciary Committee minority counsel Julian Epstein, and DCI
Group, another lobbying strategy group. Also likely to exit the
competitive telecom scene with the AT&T merger: Steve Ricchetti and
Charlie Black, well-connected Democratic and Republican strategists,
respectively, and co-chairmen of Voices for Choices.

AT&T general counsel Jim Ciccone, regarded as one of the industry's
most effective lobbyists, may even join forces with SBC, making that
regional giant even more effective against smaller rivals, some
say. He declined to comment.

"Clearly, it's a very different ecosystem without AT&T and MCI," said
Andrew D. Lipman, who leads the telecommunications practice at
Georgetown-based Swidler BerlinLLP, a law firm that represents MCI and
represented dozens of upstart companies allied with AT&T and MCI. "To
some extent it's like the U.S. and the U.K. pulling out of NATO."

Lipman said AT&T was a critical and much-heeded voice, not just on
Capitol Hill and at the FCC, but at the state level, where
telecommunications policies are hammered out at state utilities
commissions and legislatures.

"AT&T has offices in virtually every state capital," public utilities
commission and attorney general's office, Lipman said. That is matched
by only the regional Bells, which have their own lobbying
infrastructure to counter that, he said. "There is a recognition that
the other players are going to have to pony up to the bar and pay more
for their advocacy."

That reality is reflected in the fate of the competitive industry's
trade associations, which this week merged into a single entity.

In 2003, the Competitive Telecommunications Association (CompTel),
which represented some of those local companies, merged with the
Association of Communications Enterprises (Ascent), another
industry association, as membership numbers declined.

This week, the other remaining industry association representing these
independent telecommunications companies, ALTS, or the Association for
Local Telecommunications Services, merged with CompTel/Ascent. The
combined firm is called CompTel/ALTS.

"I feel sadness; there's no question about it," Ernest B. KellyIII,
president of Ascent until 2002, said about the fate of the hundreds of
small companies that have gone under. At Ascent's height in early
2000, it had more than 850 members. Now the combined entity has about
370. "They still have a voice," Kelly said, "but they won't have the
resources and they won't have the impact."

Copyright 2005 The Washington Post Company

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