The Big Telecomm Mergers: Nothing to Fear

I have long been skeptical of Bell company descriptions of competition in the telecommunications industry and of their mergers. But, as famed economist John Maynard Keynes said, “When the facts change, I change my mind. What do you do, sir?”

With the FCC-approved mergers of AT&T and SBC, and MCI and Verizon, we now face a profound reshaping of the large companies that provide communications services. While these mergers certainly merit a watchful eye by antitrust authorities and regulators, the new facts in telecomm should significantly ease concerns that the mergers are anti- competitive.

The reason, in short, is that technology is giving consumers a lot more choices and power than they used to have. For starters, take telephones connected to traditional copper wires, or plain old telephone service (POTS). For many in my generation (and our parents’) that’s all we knew. But for our kids, who are always on the go, mobile telephones have effectively replaced POTS. And at good deals: because the plans are typically offered at a flat rate, adding calls—especially at night—is largely free.

Land-line calls are heading in that direction. With new Internet-based phone service—Voice over Internet Protocol (“VoIP”)—millions of Americans are now using cable to make that extra call without paying anything for it. The VOIP revolution will only gather steam, as giants like AOL and Microsoft join the upstarts like Vonage in the industry.

Other forces of innovation are also spurring competition. Wireless broadband is growing. The power line may be poised to offer consumers another avenue for communications service. Bell companies are beginning to connect homes with fiber. Satellite is finding opportunities.

The bottom line: if we don’t like our local telephone company today, most of us have choices. The companies that are being, and have been, acquired are not unique alternatives to the local phone company. To the contrary, AT&T announced it stopped marketing to consumers last year in the wake of regulatory rulings by the courts and the FCC that changed the rules and made certain paths to competition unattractive. While many of us think those decisions were wrong, it would be sheer folly to live in denial and hope the government challenges the mergers because we’d prefer companies to act as if the world is different than it is.

Some say business has more to lose from these mergers than individual consumers. But this isn’t trust. It’s counter-intuitive to suppose that buildings full of businesses with large telecommunications spending appetites will attract less competitive interest than widely-dispersed residential consumers. Data, communications and computing needs are converging, and companies with roots in other industries compete—offering packages that include fiber transport to connect to the outside world, purchased wholesale as a commodity. Thus, systems integrators such as EDS, manufacturers such as Cisco, and competitive telecommunications companies of all stripes, among others, offer business bundles that include voice and broadband connectivity. Moreover, after buying AT&T and MCI at lofty prices, SBC and Verizon are now going to compete aggressively head-to-head for large business customers as they do now for wireless residential customers.

Finally, some opponents of the mergers have complained about the prices that carriers pay the “Baby Bells” to reach some business customers. But the answer to this problem obviously wouldn’t have been to stop the now final mergers, but to change the system at the FCC.

Even those of us who wished for a path that led elsewhere should be thankful that the mergers did in fact go through. AT&T, in particular, is in pain, continually reducing its number of employees and paring down its focus. Yet, it has some wonderful network capabilities and expertise, valuable to businesses and government. It also has important remnants of the vaunted Bell Labs, which now SBC can leverage through its greater financial strength and broader focus.

The fact that the merged company will be able to offer more services over its own network is the kind of vertical integration that the antitrust authorities should welcome rather than fear. If a local telephone company can carry its customers’ traffic across the nation or the globe on its own network, it can save money and take greater responsibility for the cost and quality of service. If a better and cheaper solution makes other solutions less desirable, let the chips fall where they may—the antitrust laws are famously not about protecting competitors, they are about protecting competition and consumers.

Litan was formerly Deputy Assistant Attorney General in the Justice Department’s Antitrust Division during the Clinton Administration.