Senators Call for More Scrutiny of Telecom Mergers

By Caron Carlson  |  Posted 2005-03-16

Senators Call for More Scrutiny of Telecom Mergers

The chief executives of the nations two largest Bell companies have come to Capitol Hill twice in two weeks with the self-assurance of individuals confident of sealing their deals.

But their plans to absorb the long-distance industry through the acquisitions of AT&T Corp. and MCI Inc. have begun to attract rumblings of doubt, even among policy-makers.

Ivan Seidenberg, CEO of Verizon Communications Inc., and Ed Whitacre, CEO of SBC Communications Inc., told panels in both the Senate and the House of Representatives that their anticipated consolidation of the telecom industry will not adversely affect competition, maintaining that the Bells do not compete head-to-head very often with AT&T and MCI.

Members of the House bought the argument, with most members on the Committee on Energy and Commerce greeting it last week with hearty praise. (The most notable exception was Rep. Ed Markey, D-Mass.) Senators, on the other hand, appear to want to take a closer look.

Read more here about how lawmakers in the House responded to the telecom CEOs testimony.

"These deals have received ... an unusually friendly reception and one that Im not sure is wholly deserved," Sen. Mike DeWine, R-Ohio, said Tuesday.

"In fact, one might normally expect that mergers worth $23 billion, combining four of the countrys leading phone companies, would raise great concern among those who follow the industry."

While it may be the case that local and long-distance carriers do not often fight for the same customer in the high-end enterprise market and in the low-end residential market, it is not necessarily so in the vast SMB (small and midsized business) market in between.

Companies with only a local or regional presence often have their choice of at least three major providers—the long-distance carriers and the regional Bell in that territory.

If the acquisitions are approved by regulators, which probably would take at least a year, there is no guarantee that the newly fortified Verizon and SBC will compete with each other.

Click here to read about SBCs acquisition of AT&T.

Midsized businesses could see their choices reduced from three providers to one—and their negotiating leverage eliminated altogether. The nearly decade-long experience of competition spawned by the Telecommunications Act of 1996 demonstrates that the RBOCs (regional Bell operating companies) are not eager to battle in each others territories.

Next Page: Defining the competition.

Defining the Competition

"In light of the failure of the 1996 act to spur effective competition, we should closely scrutinize deals that would put more and more of our telecommunications infrastructure under the control of fewer companies," said Sen. Patrick Leahy, D-Vt., one of a handful of lawmakers who voted against that act.

Questioning why SBC or Verizon would go head-to-head in the SMB market, Sen. Herbert Kohl, D-Wis., asked why it wouldnt make more business sense for them to leave those accounts to each other. "Why attempt to compete out of your region?" Kohl asked during a hearing of the Judiciary Committee on Tuesday.

Rather than suggest that SBC intends to compete with Verizon once they become the countrys two megacarriers, SBCs Whitacre said that businesses have many other choices for telecom services today, including Cisco Systems Inc. and IBM.

"The competition in that space is not three. You can go on and on," he said, not mentioning that neither Cisco nor IBM operates its own network facilities, necessitating that they contract with service providers such as AT&T and MCI.

Verizons Seidenberg added that small businesses can procure service from cable companies and wireless providers, but that assertion did not go unchallenged. For businesses that require ubiquitous, reliable telephone service—which most businesses do—wireless does not deliver an adequate quality of service today, and cable facilities pass through relatively few business districts.

"Wireline, wireless, cable—these services are inherently different, much like trains, planes and automobiles, all of which provide a similar service, but in different ways, with different pluses and minuses," DeWine said. "Not all will always provide sufficient competitive benefits for all consumers."

The FCC says consumers can put an end to VOIP port blocking. Click here to read more.

Broaching the subject of conditions that regulators could place on the acquisitions, DeWine addressed another argument made by the Bells—that VOIP (voice-over-IP) services present an additional source of competition.

VOIP "is a type of service that is only available to the consumer if he or she has broadband access, and currently that access is only available from the phone company or the cable company," DeWine said. "In order for voice over IP to be a legitimate competitor to the merged companies, must we require the phone companies to sell DSL separately?"

Kohl listed several other possible merger conditions, and asked Seidenberg and Whitacre if they would agree to them. They would not.

Would they agree not to block anyone elses traffic?

"We would have no reason to block anyone elses traffic," Seidenberg said, asserting that he knew of no cases of blocking Internet traffic.

Would they agree to stop lobbying around the country to prevent cities from building their own wireless systems?

"Those governing bodies regulate us, and at the same time theyre competing with us," Whitacre said. "That makes no sense."

Check out eWEEK.coms for the latest news, views and analysis on voice over IP and telephony.

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