FCC Clears Megamergers
The U.S. telecom industry gave a nod to the halcyon days of Ma Bell on Monday as the FCC approved the mergers of both Verizon Communications Inc. (NYSE: VZ) / MCI Inc. (Nasdaq: MCIP) and SBC Communications Inc. (NYSE: SBC) / AT&T Corp. (NYSE: T), under certain conditions. (See FCC OKs Mergers, DOJ Clears SBC/AT&T Merger, and Verizon-MCI Cleared .)
The FCC, which at one time thought the break up of AT&T was in the best interest of Americans, now says that the combinations of several of Ma Bell's offspring is what will ensure that more people are connected in more ways and are offered more communications choices. Strange world, isn't it?
Some say the restrictions the FCC placed on the mergers were minimal. Most of these restrictions were designed to prevent the carriers from giving each other preferential treatment before the mergers are completed. For instance, for 30 months, neither carrier is allowed to pay more than they already do for wholesale DS1 and DS3 local private line services when dealing with the company they're about to merge with.
Also, SBC/AT&T and Verizon/MCI committed, for a period of 30 months, not to provide special access services to themselves, their interexchange affiliates, or each other, that are not generally available to other carriers.
But some on the FCC didn't want any restrictions at all, as they believe that fewer large phone companies will help speed the deployment of advanced services because those big carriers will stay financially healthy. "I believe that the affected markets would remain vibrantly competitive absent these conditions," said FCC chairman Kevin Martin, in a press statement.
Not all hold that cheery world view. "If you seek the reason why we haven’t arrived at that happy valley of competition rife with consumer benefits, you can start with the misdirected policies of the FCC over the last several years," said FCC commissioner Michael Copps, in his statement.
"The Order the Commission adopts today falls far short of ideal," Copps continued. "Maybe a better way to put it on this Halloween Day is to say: It’s not a trick or much of a treat, but it’s all you get if you come knocking at the Commission’s door today."
Various Washington agencies are said to have undertaken careful analysis of the mergers’ affect on competitive landscape in the U.S. in the months leading up to today’s ruling. (See XO Cries Collusion .) Consumer advocacy groups have rallied against the mergers, citing fears that they will diminish consumer choice and drive up prices. (See XO Criticises Verizon-MCI.)
“Rubber-stamping these mergers is an embarrassing milestone in this nation because it puts an end to any real hope of head-to-head telephone competition,” Consumers Union director of public policy Gene Kimmelman said in a statement Thursday. (See Altnets Tackle FCC Over Merger.)
But with the strong presence of cable in today’s telecommunications marketplace (which will soon include video service), the monopolistic dynamic of Ma Bell has changed. Close observers of the situation in Washington say there was never much doubt over the FCC's approval of the mergers, only over what sorts of conditions they would be subject to.
The Department of Justice (DOJ) approved the mergers Thursday, with the understanding that both Verizon and SBC divest of certain fiber optic assets in various metropolitan areas. The conditions were far less strenuous than some consumer groups had been calling for. (See DOJ Clears SBC/AT&T Merger.)
The two mergers are similar in that both SBC and Verizon are motivated by a desire to take advantage of economies of scale and for greater access to the lucrative corporate and enterprise telecommunications market. (See SBC/AT&T Shuffles Wireline Stats.) U.S. companies spend some $138 billion on telecommunications every year and both SBC and Verizon have made plays for that market in the past, but without significant success. (See Merged Telcos Will Sport Different Looks.)
The SBC/AT&T transaction combines the nation’s No. 1 (AT&T) and No. 2 long-distance carriers, which together control a 37 percent market share. In the access market, SBC is the No. 1 consumer DSL provider, serving 5.1 million customers. (See SBC/AT&T Cheat Sheet.)
The Verizon/MCI merger combines the world’s largest IP backbone (MCI) and one of the world’s largest wireless service providers in Verizon Wireless. MCI and Verizon have a combined 11,100 points of presence nationwide, and the new company will be the No. 2 provider of telecom services to large businesses.
— Mark Sullivan, Reporter, and Phil Harvey, News Editor, Light Reading