Perspective: Here's to the best government money can buy

So much for trusting the government to do the right thing. Since the completion of last year's telecommunications megamergers, small and medium-size businesses have been getting hosed--with Uncle Sam playing the role of complicit bystander.

When the SBC-AT&T and Verizon-MCI deals got announced in 2005, supporters spun the news as pro-consumer and pro-business. But since the late fall, prices for local private lines have steadily increased. Maybe I missed the fine print on the press releases but how do square price increases with the public interest?

Actually, nobody should be surprised by the turn of events. A year ago Simon Wilkie, the former chief economist for the Federal Communications Commission, warned as much. Unfortunately, the somnambulists masquerading as antitrust lawyers in the Justice Department paid him no heed.

If the court decides these earlier deals were not in the public's interest, you can kiss the AT&T-BellSouth merger goodbye.

Wilkie conducted his research on behalf of the Alliance for Competition in Telecommunications, an organization funded by rivals of SBC and Verizon. But ACTel's members still raised a legitimate fear. They leased lines at wholesale rates from the likes of SBC and Verizon before reselling the lines to their business customers. As long as AT&T and MCI remained independent, competition naturally curbed the Bell companies' ability to ram through price hikes. Those restraints would disappear after the Justice Department gave a green light to the mergers without requiring the divestiture of major assets.

For the corporate fat cats and investment bankers involved in the deal, there's no doubt these are the best of times. I suppose history's fair judgment will take years to render. Still, there are fishy aspects to this story that have received short shrift in the general media.

Not long ago, I ran into Gary Reback at an industry get-together. Tech industry history buffs remember Reback, who for a time was perhaps the most influential lawyer in Silicon Valley. As head of its high-technology group at Wilson Sonsini Goodrich & Rosati, he represented many of Silicon Valley's hottest companies and played a pivotal role convincing the United States Justice Department to launch its antitrust probe of Microsoft. These days Reback represents ACTel and he has a tale to tell.

In May 2005 Hewitt Pate resigned as the antitrust chief at the Justice Department. Pate was not popular with the antiregulation crowd who initially cheered the nomination a month later of his replacement, Thomas Barnett.

It did not take long before Barnett was assailed for failing to move more rapidly to approve the SBC-AT&T and Verizon-MCI mergers. The sharks began to circle. Early that fall The Wall Street Journal reported that the Barnett appointment had been frozen and that a couple of senators had asked President Bush to reconsider the nomination.

In late September, ACTel says, it was told by DOJ lawyers to submit a white paper containing its objections to the proposed deal. But by the time ACTel submitted its documention a couple of weeks later, the deals had already by and large received tacit government approval.

By late October, it was all official. The Bells got most of what they wanted. The quid pro quo was an agreement to get rid of relatively minor facilities. As for Barnett, the senatorial hold was mysteriously lifted and he was sworn in on Feb. 10, 2006. It's odd for the DOJ to render a decision on a mega-deal when the assistant attorney general in charge of antitrust is not officially confirmed. At the time, some antitrust layers and commentators thought the proposed mergers would be delayed until a permanent antitrust head was in place. No such luck.

"Heretofore, no one thought it was appropriate to clear deals like this when the nominee could be put under extreme political pressure," Reback said.

The courts can't turn back the clock, but later this summer the U.S. District Court in Washington will hold a hearing to determine whether the mergers are in the public interest. When the two sides present their evidence, it should be a grand show. Wouldn't it be something if the court declared these deals not to be in the public interest (or at the very least that the DOJ failed its charge by rubber-stamping a couple of sweetheart deals)?

That's important for a couple of reasons.

In March AT&T launched a $67 billion stock offer to buy BellSouth, a proposed deal that would create a telecommunications gargantuan (which also would incorporate the biggest cellular company in the nation). Meanwhile, the telecommunications laws are getting a rewrite in Congress.

If the court decides these earlier deals were not in the public's interest, you can kiss the AT&T-BellSouth merger goodbye. Ditto for the ambitions of those who argue that network neutrality is just a byword for intrusive government regulation.

How we reached this crossroads speaks volumes about the influence of corporate money on power in contemporary Washington. Reback's probably right when he says the public's interest would be better served if we all paid greater attention. The problem is that we usually find out something's amiss after it's too late.

Biography
Charles Cooper is CNET News.com's executive editor of commentary.

More Perspectives

[benny594]

billions in losses ?

It is curious how Verizon , (AT&T and BellSouth ?) can plan to go through with these mergers since they stand to lose billions from litigation by tens of thousands of current and former employees. They purposely allowed employees to work with and be exposed to a product they knew could cause severe adverse health effects, disabilities, cancer and death and did not tell.

[BMoake]

Government's fault, yes...Merger's fault no.

It is true the gov't is to blame for the price hikes and the lack of competition is the problem, but not in the way this "pro-big government" article states. It is the local governments that do not allow competition that are to blame. Open phone service to competition and watch the prices decline.

[gerhard_schroeder]

More whiny c|net stories

Talk about cry babies... My god... Just buy some stock in these mega-corporations and you can be a fat cat too...

I swear. Bandwidth is commoditized. I used to pay Verizon nearly $100/month for DSL service as few as 5 years ago. Now my prices have dropped an astounding 60%.

Stop trying to foment anger against corporations. We live in a capitalist country, not a socialist one. Corporations are what pay all of our wages and make the country run. I want us to have the worlds most powerful corporations. Apparently, this makes you uneasy and so you wring your hands and worry and cry on c|net. What a public service you are, charlie boy.

[jdbwar07]

Reply

When a corporation (or group of them) form oligopolies, buy their way in the government, and charge extra high prices, it's generally bad for the economy as a whole. And America needs a strong economy.

It's funny how with far-right republicans if you don't like large corporations screwing America, it make you equal to a communist.

[airbns]

Oh My

You can't be serious, can you?

Bandwidth is far from commoditized. And while it may have been subject to more competition five years ago, it is far less so now that ATT and Verizon have been gobbling up every company they can since then.

You're right, we have a capitalist country. But here's something you apparantly aren't aware of with regard to capitalism: capitalism implies free markets that allow competition.

Free markets are something we've never had in the telecommunications industry. It's always been a government supported monopoly. And do you know where you'll find government supported monopolies? Yup, that's right - communist countries.

Eisenhower warned us against this sort of thing fifty years ago, when he cautioned against the military-industrial complex. Apparantly even fifty years ago there were folks smarter than you.

[i_made_this]

what do we really expect of att&t & verizon...

...when they're giving free office space to the NSA at strategic listening posts around to nation to intercept your phone and email conversations? I assure you that AT&T and VERIZON view themselves as government agencies, even though they (only in words) are not.