Phone Company Mergers Win on Capitol Hill

House telecom leaders praise consolidation of resources.

The CEOs from the nations largest phone companies went to Washington last week to convince Congress that merging their businesses will be good for America. Fortunately for them, much of the leadership on Capitol Hill appears to have reached the same conclusion.

Calling the planned acquisition of AT&T Corp. by SBC Communications Inc. and of MCI Inc. by Verizon Communications Inc. "a necessary tune-up to the telecom industry," Rep. Fred Upton, R-Mich., said the mergers "are not only logical but integral."

At a hearing of the House Committee on Energy and Commerce, the top executives of the four companies, as well as of Sprint Inc. and Nextel Communications Inc., described a future telecommunications marketplace in which strengthened carriers would have more resources to invest in network improvements. The committee leadership, for the most part, echoed the executives sentiment.

"AT&T and SBC have complementary assets that will create a company with strengths in the residential and enterprise sectors," said Rep. Joe Barton, R-Texas, committee chairman. "The same logic applies to the Verizon-MCI deal."

However, several lawmakers—most, but not all, Democrats—voiced concern about the impact of the planned acquisitions on competition, prices and the pace of innovation. Rep. Ed Markey, D-Mass., attributed the weakness of the long-distance giants to noncompetitive maneuvering by the RBOCs (Regional Bell Operating Companies) and unwise policy decisions by the Federal Communications Commission.

"The Bell companies have employed nonmarket strategies in the courts, in Congress and ultimately at the commission to beat AT&T and MCI and compel them into these mergers," Markey said, adding that the question remaining is whether "the mergers merely presage the cozy coalescence of the communications colossi."

Markey asked Verizon CEO Ivan Seidenberg and SBC CEO Ed Whitacre to pledge that rates would not rise in the wake of the mergers, but both executives declined to make the pledge. Instead, the CEOs reiterated the notion that consolidation would allow for more investment and that technological advances are the driver of the acquisitions.

Leveraging the long-distance companies recent announcements that they would no longer target their marketing at residential consumers, Seidenberg and Whitacre endeavored to describe a marketplace in which Verizon does not compete directly with MCI and SBC does not compete directly with AT&T. That did not appease all lawmakers, however, and several expressed concern that the two mega-carriers of the future would not generate much competition for each other.

"We are now on the cusp of seeing the emergence of a duopoly," said Rep. Heather Wilson, R-N.M. "I do have doubts whether this will benefit the American economy."

Legislators acknowledge that the focus of their attention must be consumers, since they are "retail congressmen," as described by Barton. However, in a networked economy, consumer interests are also, by definition, business interests. Almost all industries rely on the telecommunications infrastructure to connect with customers, said legislators.

When pressed for details on how the mergers would affect competition in the land-line telephony market, Seidenberg and Whitacre consistently shifted the topic to different modes of communication. Noting the wide popularity of cell phones and e-mail, both executives said competition exists among the different modes.

Wireless, cable and satellite services generally are not viable substitutes for land-line telephony for SMBs (small and midsize businesses), which may have the most to lose in a consolidated marketplace, however, said Rep. Mike Ross, D-Ark. Noting that many small businesses, and some large ones, today do not receive some of the telecom services available in large cities, Ross expressed concern that SMBs could be neglected by merged carriers.

The hearing was as much a prologue to an anticipated rewriting of the Telecommunications Act of 1996 as it was an airing of ideas about the planned consolidation. Barton said he expects a bill to be deliberated in the House this summer.

/zimages/4/28571.gifClick here to read about what effect FCC Chairman Michael Powells departure could have on the future of the Telecommunications Act.

At the core of the larger telecom debate will be the interests of rural America, specifically whether the nearly century-old policy of ensuring that high-cost and low-income regions receive affordable service will be continued. Representatives from rural states are worried.

Rep. Barbara Cubin, R-Wyo., said she was skeptical that the merged companies would do a better job of serving rural customers, particularly because the so-called competition from wireless companies has not served her region well.

"All over Wyoming, [spotty wireless service] is the rule, not the exception," Cubin said. "I want you to know were serious. We demand services."

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