Telecom Mergers Impact Price

By Caron Carlson  |  Posted 2005-02-21

Efforts to slow falling prices are behind the rash of recent telecommunications mergers, and the fallout will likely have business customers—large and small—digging deeper for services offered by a smaller pool of providers.

Verizon Communications Inc.s $5.3 billion bid for MCI Inc. last week, if approved by regulators, would knock the second-largest competitive carrier out of the arena. Coinciding with SBC Communications Inc.s offer of $16 billion for AT&T Corp. last month, the industry consolidation would eliminate some competition, particularly for businesses operating in a single region of the country.

"We are definitely concerned about how the SBC and AT&T merger will impact service levels and pricing in the short term," said Todd Dierksheide, senior network engineer at Sovereign Bank, in Reading, Pa.

Business customers have benefited not only from choice in telecom but also from special regulated rates that competitive carriers—such as AT&T or MCI—pay incumbent local carriers—such as Verizon or SBC—to gain access to the final stretch of wires connecting to the customer. Without AT&T and MCI around to continue fighting for special access rates, even national and multinational enterprises could face rising prices.

"This is sure not going to help us in the effort to bring down special access pricing," said Brian Moir, a Washington-based attorney who represents enterprise users.

Increased pricing power gained by Verizon and SBC in the acquisitions could also affect the price of wholesale Internet and long-haul access, which cable and VOIP (voice over IP) providers depend on as well, said Chris Stern, an analyst with Medley Global Advisors LLC, also in Washington.

"I think for the next year or two theres going to be a debate about what the industry is going to look like," Stern said. "The fundamental reason youre seeing this consolidation is so these [companies] can get into the enterprise market."

The mergers of the countrys two largest long-distance carriers with the two largest RBOCs (Regional Bell Operating Companies)—considered inconceivable not so long ago—will tilt the balance between industry segments that has defined telecom regulation for more than a decade.

"If business customers dont stand up for themselves, theres going to be nobody left to stand up for them," Stern said.

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