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MCI and AT&T Leave Little Guys Behind

By Yuki Noguchi
Thursday, March 3, 2005; Page E01

Lobbying against the regional Bells is about to become a lonely cause for XO Communications Inc. of Reston.

For years, XO, MCI Inc. and AT&T Corp. were more or less comrades fighting regional phone giants such as Verizon Communications Inc. and SBC Communications Inc. to open up local markets and get access to the Bells' facilities. Now MCI and AT&T plan to merge with the very regional phone giants they lobbied against -- Verizon and SBC.

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XO is a relatively small company, with about $1 billion in annual revenue and 5,000 employees. The much larger AT&T and MCI bankrolled many of the battles over issues central to the local phone industry and funded advocacy groups to back them up.

But now, SBC is buying AT&T for $16 billion, and Verizon has agreed to buy MCI for $6.75 billion. Qwest Communications International Inc., another regional phone company, is also bidding for MCI. That dries up a huge chunk of funding and leaves XO among the handful of small telecommunications companies that aren't part of the growing Baby Bell phone empire.

"It's going to be a big decrease in funding when they walk away," said Heather B. Gold, senior vice president for government relations for XO, which opened a regulatory office in the District after it acquired another independent telecom company, Allegiance TelecomInc., last year. "We will have to build more coalitions [among the smaller companies] to replace the single or double source of support," she said.

XO didn't always have the same interests as AT&T and MCI. XO doesn't sell to residential consumers, for example, and owns its own network in most major cities. It leases high-capacity lines used for business Internet connections.

AT&T and MCI relied on regulations that allowed them to lease local lines from the regional companies at discounted rates and resell local phone service under their own brands. AT&T and MCI fought vigorously to keep those discounted rates in place, but they lost the battle and were forced to pull back from the consumer phone business.

This year AT&T and MCI won't be with XO but against it as XO fights approval of the mergers in front of the Federal Communications Commission.

"We plan to lobby against these mergers as anticompetitive," Gold said.

The mergers come at a time when companies like XO are already weakened by other business dynamics. XO has been in and out of bankruptcy protection, and in the Washington area alone, dozens of telecommunications companies collapsed with the technology crash that started in 2000.


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