Competition calling

REPORTS OF MA BELL'S DEATH were greatly exaggerated. AT&T;, which lost its independence (and almost its name) when it was purchased by SBC in November, now finds itself at the center of one of the largest mergers in business history. And concerns about the dangers of the deal are exaggerated as well.

This time, the newly reconstituted AT&T;, formerly known as SBC, has agreed to buy BellSouth, the dominant local phone company in the South, in a stock swap worth about $67 billion. The merger, which must be approved by the companies' shareholders and federal regulators, would combine the erstwhile Ma Bell's market-leading long-distance business with local phone companies serving 22 states, or about 40% of the country's phone lines.

The numbers may be eye-popping, but the new Ma Bell is unlikely to be as powerful -- or as dangerous -- as the old Ma Bell. AT&T; competes halfheartedly today for business customers in a few cities served by BellSouth, and BellSouth doesn't even try to compete with AT&T; on the latter's home turf. And rather than operating rival wireless networks, AT&T; and BellSouth jointly own one -- Cingular.

As a consequence, the merger would have practically no immediate effect on BellSouth's or AT&T;'s market. Customers would neither gain nor lose any options for phone, high-speed Internet or wireless services.

Some critics argue that AT&T;'s chairman, Edward E. Whitacre Jr., is trying to reassemble the phone monopoly that the federal government broke up in 1984. As head of SBC, Whitacre has already gobbled up two of the regional Bells (Pacific Telesis and Ameritech) and last year acquired the struggling AT&T; for $16 billion. The phone market is fundamentally different now, however. Cable TV companies sell phone and high-speed Internet service over their networks; mobile phones have become an increasingly affordable alternative to a home phone line; and numerous Web-based companies let users make calls through the Internet for little or no charge.

Meanwhile, phone companies such as AT&T; and Verizon are starting to offer video services through high-speed Internet lines that can compete with cable and satellite TV operators. The proposed merger could actually promote that competition. Offering video through broadband connections also could serve as the Trojan horse that pushes high-speed Internet service into more homes.

Still, regulators shouldn't just wave the merger through. In much of the country, there isn't very much competition among high-speed Internet networks. So AT&T; could be tempted to soak customers or extract extra fees from Web-based companies. And Whitacre has made some troubling comments about companies such as Google having to pay to use "his" pipes.

AT&T; says it merely wants to charge websites for delivering faster service to users. Rather than trusting the company not to hamper the Internet or play favorites, regulators should require it to pledge to preserve a level playing field for all websites, programmers and services as a condition of the BellSouth deal. Customers and websites shouldn't have to pay twice to connect to each other, nor should AT&T; or any other network operator be able to give any site or service an unfair advantage over its competitors.

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