Think tank, consumer group object to telecom mergers

WASHINGTON – Proposed telecommunications mergers between Verizon Communications and MCI and between SBC Communications and AT&T will limit consumer choices and could create a near duopoly that squeezes out smaller carriers, representatives of the American Antitrust Institute (AAI) and Consumers Union said Thursday.

The mergers create a potential for higher telecom prices and the possibility that the two telecom giants block competitors from network access. While government agencies reviewing the proposed mergers could require conditions that lessen those possibilities, the safest route would be to block both mergers, said Jonathan Rubin, research fellow at AAI, a Washington, D.C., think tank that advocates the use of antitrust laws to ensure competition among U.S. businesses.

Representatives of Consumers Union, a consumer advocacy group, and XO Communications Inc., a telecom carrier that competes with the four companies proposing mergers, took an even stronger stand against the mergers, saying they should not be approved. The U.S. Department of Justice and the U.S. Federal Communications Commission will review both mergers.

On Feb. 14, MCI agreed to be acquired by Verizon for approximately $6.7 billion, although Qwest Communications International has countered Verizon’s bid. SBC agreed Jan. 31 to buy AT&T for $16 billion.

Verizon and SBC have falsely pointed to competition from wireless providers and voice over Internet Protocol (VOIP) providers as evidence that robust competition exists, noted Carl Grivner, chief executive officer of XO Communications. VOIP requires a broadband connection, and those incumbent telecom carriers have generally required customers of their DSL (Digital Subscriber Line) service to also carry their local phone service, and Verizon and SBC control two major wireless carriers, he said. “When they say (wireless) is another option, it’s really another option for them to use,” he said.

AAI hopes MCI can remain an independent carrier, said AAI President Albert Foer, echoing a letter the group sent to the U.S. Senate Judiciary Committee March 15. If the SBC/AT&T merger goes through, and MCI cannot survive on its own, the think tank would prefer that MCI merge with Qwest, he said. MCI on Wednesday announced it was still considering Qwest’s bid.

A Qwest/MCI merger would elevate Qwest to be a third national competitor to Verizon and SBC, while a Verizon/MCI merger would eliminate MCI as a long-distance competitor in the Northwest U.S., Rubin said. If Verizon acquires MCI and its long-haul telecom network, Verizon would stop buying long-haul telecom services from smaller carriers, potentially causing massive layoffs among those smaller carriers, he said.

The Verizon/MCI and SBC/AT&T mergers would create a “duopoly of one-stop shops” selling a wide range of telecom services, Rubin added.

“Two large, vertically-integrated firms may find the gains from allocating markets and avoiding vigorous direct competition too great to resist,” he said. “In such a scenario, the presence of a number-three player, a competitive-fringe or a market maverick, can make all the difference between a dynamic competitive market and a stilted, static one.”

Qwest responded by saying it has raised similar concerns about the Verizon/MCI merger. “For weeks Qwest has warned about concentration issues that will result from a Verizon/MCI merger and how it will lead to less choice, less competition and massively increased pricing power,” the company said in a statement. “It’s positive to see others, especially experts in the areas of antitrust and consumer protection, raising those same concerns.”

But a Qwest/MCI merger would result in less competition for long-haul telecom services, as the two companies combine their long-haul networks, a Verizon spokesman said. “Qwest would likely remove a tier-one backbone from the competitive landscape; Verizon will invest billions in it, preserving and expanding competition,” Verizon spokesman David Fish said in an e-mail.

An MCI merger with Verizon would also create a stronger competitor to the combined SBC/AT&T, he added. “By investing in MCI, Verizon is keeping a strong competitor in the marketplace,” he added. “If a weaker company ends up with MCI, that could end up eliminating a competitor (in the market for global and national telecom services) and leave only one player.”

An MCI spokesman declined to comment Thursday. SBC didn’t immediately respond to a request for comments on the AAI press conference.

An AT&T spokeswoman declined to comment directly, but pointed to comments David Dorman, AT&T’s chairman and chief executive officer, made at the American Enterprise Institute Thursday. In his speech, Dorman said the SBC/AT&T merger would spur more competition from wireless carriers and cable operators, as well as from other incumbent telecom carriers.

“We see this union as a natural response to industry trends and the rapid advance in communications technologies in recent years,” Dorman said in a statement. “This merger will drive greater levels of competition, and it will allow the consumers of telecom services to determine the industry’s ultimate winners and losers — as it should be in a free marketplace.”