SBC, AT&T say Bell breakup doesn't work

The government-induced dismantling of AT&T 20 years ago, meant to spur competition between local and long-distance providers, is no longer viable, two survivors of that breakup argued Tuesday as they filed to merge.

In merger applications to the Federal Communications Commission and the Department of Justice, local phone provider SBC and AT&T, now a long-distance provider serving mostly businesses, said today's telecommunications market--and today's consumer--isn't suited to a disparate group of phone providers.

With cable operators entering the telephony market, mostly with voice over Internet Protocol (VoIP) plans via broadband Internet connections, competition is getting too hot, the application claims. AT&T and SBC say they won't be able to compete because neither can "assemble a true nationwide end-to-end broadband network." With companies increasingly bundling services to provide "triple plays" of voice, TV and Internet broadband, customers no longer want individual offerings, the applicants maintain.

"The existence of separate local and long-distance companies no longer benefits consumers," SBC and AT&T wrote to the FCC.

The two companies are seeking approval from regulators for a $16 billion deal in which SBC would acquire AT&T. The Justice Department's antitrust division would have to agree with the companies that the deal wouldn't reduce competition in the telecommunications market, and the FCC would have to weigh the more broadly defined "public interest."

The 100-plus-page merger application claims competition won't be stifled. It also paints a bleak picture for traditional phone companies in 2005. By year's end, cable television operators will be offering telephony to two-thirds of American homes, either with VoIP or traditional circuit-switched means, while cell phone operators will overtake traditional local phone operators in terms of "lines" served, the companies said in the merger application.

The days of defining local and long-distance calls may be over. While the 1984 divestiture of the Bell system and 20 years of FCC regulation have separated the telecommunications industry along local and long-distance faults, the operators argue that those lines are being erased.

"No longer are providers restricted to specific lines of business or geographic territories," the companies wrote in their application.

Telephone operators increasingly rely on Internet Protocol, the backbone of the Internet. IP-based phones are mobile, and can be used from any broadband connection in the world. That creates scenarios current telecom law doesn't cover. For instance, someone with a New York City telephone number could be in Los Angeles using his IP phone to call New York. So is that a local call? Or is it long distance because the call itself has to travel cross-country? Providers with nationwide networks are better positioned to serve this type of customer, the two companies say.

The two telcos also claim national security may be at stake if the sale doesn't go through. That might lead to a foreign company buying AT&T, which the application states "the (U.S.) government heavily depends (on) for national security and other needs."

AT&T's customers include the White House, the Department of Homeland Security, the Department of State, the Department of Defense, and numerous states, including Alaska and New York.

This is the third telecom merger now being investigated by the two federal agencies, busy times for both that may mean the investigations stretch out longer than expected.

With AT&T's long-distance rival MCI receiving bids from Qwest Communications and Verizon Communications, a fourth inquiry by federal agencies is expected soon. The agencies are also looking into Sprint's proposed purchase of Nextel Communications, and second-tier landline phone company Alltel's takeover of rural cell phone heavyweight Western Wireless.

Smoke and Mirrors

The claim that the lines between long distance and local calls are being erased because of broadband telephony is nonsense. The number of calls terminated on broadband phones is negligeable. Calls made from broadband VOIP phones are terminated mostly on local phone lines where guess who has a defacto monopoly, and makes money on every minute of every call. The reality is that SBC is able to buy AT&T, its former parent, because SBCs assets, the local loop, remained a monoply while while AT&T had to compete in a competitive market. Does anyone really believe SBC is able to buy AT&T because SBC is a nimble superior competitor in a competitive market, rather than because of its near-monopoly power?

Shameful National Security Argument

After decades of lobbying governments around the world to open their telecoms markets to foreign investment, and actively investing abroad does SBC-AT&T feel no shame to pull out the "if we don't buy it a foreigner will and this will be bad for national security" argument? Does this mean that SBC, which prides itself on its good corporate citizenship, has actually been conning foreign countries into forfeiting their national security when arguing for opening up the telecoms market to foreign investment?

Flimsy arguments, bu what about alternatives?

The Bush Administrations have single-handedly given back to corporate giants the monopoly power of a national telco. The UN, supported heavily by the US delegation, championed and passed a resolution back in 1995 that member nations should privatize their national telephone monoplies in an effort to build international investment, improve infrastructure, and thus promote the world economy. The Incumbent telcos in the US put up with competition only as long as it served their purposes of getting into long distance and then closed the door to competitors through their monopoly power and use of the court system to bypass traditional telco regulators. This new national monoploy of megalith mergers rolls back the clock 30 years and flies in the face of every other nation in the world that is trying to find a model for competition and self development.

Is the Justice Department so naive as to think national security would be compromised without a national monopoly? What about US companies creating huge competitors in the newly opened other nations of the world? What happens when those countries decide that it is their national security interests to takeover any US company investment assets and go back to a national monopoly?

On the flip side, as a hope for consumers, there are the cable monopolies who, with public financing, have built urban networks that can be used for even better communications that most old telco networks. Thus far, there has not been any regulation to open these networks to competitors and lower the price of cable, much less offer alternative communication providers to consumers. Those networks were built with public financing and federal subsidies just as the telco networks were and should be subject to public use through competition.

Additionally, there are trials of telco and video over power lines that might serve as other alternate competitors in the US. Again, those networks were built with federal subsidies and public financing as well, so a very logical regulatory policy would be to make those outlets available to competitors.

Satellite is currently an alternative, but not as handy or reliable as a wired service.

The lessons learned from the megadollar fighting of competiton by the incumbants in the telco industry should be used as forewarnings of what will be to come in the other two industries when, and if, the federal government stops sucking on the milk of their corporate campaign contributions and adopts a reasonable capitalistic approach to communications policy in this country as the UN has tried to do elsewhere in the word.