Ringing In the Old?
When Congress enacted a sweeping telecommunications reform law in February, one of its central objectives was to spur the kind of competition in local telephone service that, in the long-distance arena, has slashed rates by 40% and boosted the number of carriers to about 500 since the 1984 breakup of the old AT&T; monopoly.
But instead of unleashing a media free-for-all, where phone carriers, broadcasters, cable television operators and media companies would invade each other’s markets, the clock so far has headed only backward, critics say--at least in the local phone business.
There, two massive proposed mergers--SBC Communications Inc.’s $17-billion bid for Pacific Telesis Group and Bell Atlantic Corp.’s $22-billion deal with Nynex Corp.--are driving a consolidation wave that could leave the industry looking suspiciously like the old Ma Bell.
As a result of the two planned mergers, the seven regional Bell telephone companies are poised to dwindle to five by next year. And speculation is bubbling about whether the three remaining Baby Bells will also partner with one another or perhaps with cable TV operators or other long-distance firms.
Executives at companies that could face a tougher time as a result of the mergers are already beginning to protest.
“It’s hard to see how new competition promised by the Telecommunications Act can be attained if existing monopolies simply combine into larger ones,” said Mark Rosenblum, vice president of law and public policy for AT&T.; “The concern is especially great when these two companies otherwise would have had powerful incentive to compete against each other” because of their “close proximity . . . and name recognition each has built up in the other’s backyard.”
Whether the planned mergers trigger a similar reaction from government regulators remains to be seen. They come more than a decade after a government antitrust suit against AT&T; resulted in the local phone monopoly being split up into seven regional Bells. The break-up spurred a wave of new competition in long-distance service and communications equipment.
But entering the local telephone business is a bigger economic challenge than entering long-distance, where companies such as MCI started a generation ago with little more than office space, a little marketing savvy and a line of credit to buy and resell long-distance lines from AT&T.;
Local telephone resale is promoted in the new telecommunications law--under terms that experts say are more favorable than they were in long-distance--but some antitrust experts say the combination of likely competitors such as Bell Atlantic and Nynex will make it harder to challenge the entrenched monopolies.
“The Bell Atlantic-Nynex deal doesn’t really exacerbate the local telephone monopoly, but what these deals do is reintroduce some concerns about diminished competition,” said Phil Verveer, a Washington communications lawyer and former Federal Communications Commission official who was in charge of the Justice Department’s investigation of the old AT&T; monopoly in the late 1970s. “If one company controls too much of the local marketplace there can be serious effects” and hurt long-distance service, telephone equipment manufacturers and consumers.
But even pro-consumer lawmakers, many of whom dislike most mergers, now take the view that the burgeoning telecommunications business has enough big players--including AT&T; and cable giants such as Time Warner Inc. and Tele-Communications Inc.--to go up against two or more Baby Bells at a time.
“Without the introduction of vigorous competition in the Baby Bell’s local telephone market, [the] merger between Bell Atlantic and Nynex could lead to a disturbing stifling of competitive energies, [but] that is why the of the half of the story must also unfold,” said Rep. Edward Markey (D-Mass.), a ranking minority member of the House Telecommunications subcommittee.
However, a different view is expected to emerge from at least several state regulators in the nearly two dozen states that are now poring over the deals.
Although many state regulators are concerned about competition, they are concentrating on how that competition might directly have an impact on their states’ economies.
In New York, where Bell Atlantic plans to move its headquarters after it merges with Nynex, regulators reacted as if the deal were a fait accompli.
“Locating the headquarters of the new company in New York City is great news for the city in particular and New York State in general,” said John F. O’Mara, chairman of the New York State Public Service Commission. “I have instructed the department staff to immediately begin reviewing all of the merger to ensure that New York’s consumers get the best telecommunications services for the most reasonable rates.”
But Bell Atlantic Chairman Ray Smith acknowledged that things are a little more delicate in Pennsylvania, the state that will lose the corporate offices of a Fortune 500 company.
“We have told [officials] that there will be more jobs in Pennsylvania in three years than there are now. We just have to be allow to grow this business and be competitive,” Smith said in a telephone interview.
But the toughest regulatory scrutiny will probably come in California, which stands to lose a Fortune 500 company to Austin, Texas-based SBC Communications if its $17-billion acquisition of PacTel is approved. Jessie Knight, one of the five commissioners on the California Public Utility Commission, promised a rigorous review.
Specifically, Knight said, the commission must consider what economic impact the PacTel-SBC merger will have on the state and what benefits, if any, accrue to ratepayers.
“As we move into the world of competition, other things need to be considered to judge the merits of this merger, such as the opportunity for greater services to be offered, a better balance of competition and new technological advancements,” Knight said.
On the federal level, the Justice Department has already indicated it will review the SBC-PacTel deal. No agreement has been reached yet between Justice and the Federal Trade Commission as to which agency will review the Bell Atlantic-Nynex deal, although a top FTC official said it is likely the Justice Department, which has more experience probing telephone industry mergers, will examine the Bell Atlantic deal.
Times staff writer Amy Harmon contributed to this report.
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An Accounting of the Bells
With the proposed Bell Atlantic-Nynex and Pacific Telesis-SBC Communications mergers, the number of Baby Bells could shrink from seven to five. A look at the strengths and weaknesses of each:
US West Inc.
Strengths: One of the world’s largest cable operators, with a 25% stake in Time Warner Cable and international interests. Would get larger with proposed acquisition of Continental Cablevision. Its wireless network is scheduled to expand through a partnership with AirTouch Communications, Bell Atlantic and Nynex.
Weaknesses: Serves a large area with a relatively sparse population, making it difficult to maintain and increase its telephone network’s size and cash in on long-distance. Has had service problems. Analysts say the company does not have much to show for its huge cable investments.
BellSouth Corp.
Strengths: Dominates one of the country’s most lucrative and fastest-growing telecommunications markets. Rich in cash; has made wise investments in technology. Has a booming cellular business.
Weaknesses: Conservative diversification strategy has been criticized by some analysts. Lacks powerful alliances that other Baby Bells have.
Ameritech Corp.
Strengths: Strong in voice, video and managed services. Cellular and paging divisions are also strong. Has seen robust growth in its core communications businesses, including access lines, usage and call-management services.
Weaknesses: Its regional network will appear small as other Baby Bells combine. Wireless business is confined to Midwest base. Businesses don’t think of it as a national company. Forays into cable TV have faltered. Also lacks alliances.
SBC Communications Inc.-Pacific Telesis Group
Strengths: Would have strong presence in growing foreign telecommunications markets and would be better able to mount a challenge in long-distance. Would have control of two of the nation’s more populous states and have monopolies in seven of the nation’s 10 largest metropolitan areas.
Weaknesses: The companies have competing video ventures. Size of the combined company might impede efficiency. Has no Eastern holdings.
Nynex Corp.-Bell Atlantic Corp.
Strengths: Combined company would have extensive reach in data, voice and video communications. Merger would offer broader geographical coverage for future forays into long-distance.
Weaknesses: Combined companies must integrate divisions without disrupting service. Lacks easy means of access to lucrative Western markets. Merger deal faces extensive regulatory review.
Sources: Times staff and wire reports
