Normally, I take a skeptical view of corporate mergers and acquisitions, from the viewpoint of both consumers and shareholders. But in the telecom industry, deregulation and technological change have created so much overcapacity, driven prices so low and so thoroughly transformed the services being sold that consolidation is now both inevitable and desirable.
As far as we can tell, the future belongs to companies that build efficient networks delivering a bundle of services -- voice, data, video, Internet access -- to households and businesses. In that digital world, the traditional distinctions between local and long-distance, voice and data, Internet and television are increasingly irrelevant.
Right now, there are four types of companies competing to build such networks and deliver these services: phone, cable, ground-based wireless services (cell phone networks) and wireless service that comes from satellites. For regulators, the key question going forward is whether the public is best served by allowing the companies that have built such networks to monopolize the services that run over them. Or should they be required to allow competitors access to certain parts of their networks, at a reasonable price, to ensure a more competitive market?
Over the next several years, an expensive and high-stakes lobbying and legal war will be fought over just those questions. And the first battle is likely to be the antitrust review of the SBC's proposed purchase of AT&T and Verizon's of MCI.
First, some history. One of the premises of the 1996 Telecom Act was that a Baby Bell like Verizon would have to lease out, at a reasonable price, its local wires and switches to competitors -- in particular, Baby Bells from other regions and long-distance companies offering combined local and long-distance service.
This competition among phone giants never really materialized. The Baby Bells effectively entered into a nonaggression pact, refusing to enter one another's territory. Meanwhile, in Washington, the Bells launched an endless series of legal attacks on the rules for pricing the network access that eventually forced even giants like AT&T and MCI out of the business, and into the arms of SBC and Verizon.
Now, however, regulators have one last chance to create genuine competition among phone companies. As a condition for approving their purchases of companies they were supposed to compete against, SBC and Verizon should be required to negotiate a contract allowing each to hook into the other's local network on reasonable terms. In addition, whatever deal they come up with would have to be offered to the other two Baby Bells, Qwest and BellSouth.
This process wouldn't immediately require the Baby Bells to compete on one another's turf, as they promised to do in the past and promptly forgot about. But once the Baby Bells finish locking up the traditional phone markets in their home territory, which they are well on the way to doing, they will probably have no choice but to go elsewhere to meet growth targets. These agreements would open the door to such competition.
There is recent precedent for such a requirement involving another government-sanctioned monopoly, a cable company. As a condition for approving their merger, the Federal Trade Commission required Time Warner to allow its cable customers to choose an Internet service other than America Online. And one would hope that the FTC would extend a similar open-access requirement to Comcast if it wins its bid to acquire parts of bankrupt Adelphia.
For the past decade, the Baby Bells have talked incessantly of the glory of competitive markets while using their power and guaranteed profit to try to make sure they had no serious competitors. Now that wireless and cable competitors have come along and broken their local phone monopolies, they are scrambling to get into everyone else's businesses. Before they are allowed to buy their way in, we ought to force them to share the local networks they built at their customers' risk with their customers' money, just as Congress intended.
Steven Pearlstein can be reached at email@example.com.