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Steven Pearlstein

Telecom Merger Might Be What Consumers Need

By Steven Pearlstein
Wednesday, December 15, 2004; Page E01

It tells you something about the state of competition in the telecom sector -- or the lack of it -- that consumers should cheer the widely expected merger between the No. 3 and the No. 5 wireless companies.

It's not just that the new Sprint-Nextel will, in the long run, add critical mass to the economically important telecom cluster here in Washington, even if the company makes the initial mistake of locating too much of its operations in Sprint's hometown of Overland, Kan., rather than in Reston.

_____Live Discussion_____
Transcript: Steven Pearlstein was online to discuss the Sprint-Nextel merger.
_____Related Coverage_____
Sprint, Nextel Announce Merger Plans (The Washington Post, Dec 15, 2004)
Merger Puts Nextel at Crossroads (The Washington Post, Dec 15, 2004)
Nextel Story Archive
_____Past Columns_____
Let Economics, Not Politics, Steer Skyland Project (The Washington Post, Dec 10, 2004)
. . . And Another Thing (The Washington Post, Dec 8, 2004)
A Culture Of Subsidies Inflates Costs (The Washington Post, Dec 1, 2004)
Column Archive

More important, Sprint-Nextel would provide a strong and independent competitor to the local cable and phone companies that are desperately trying to leverage their existing monopolies to lock themselves in as your one-stop supplier of basic telephone, wireless, Internet and cable television service.

This wasn't what Congress had in mind when it restructured and deregulated the telecom market back in 1996. The idea was not only that different companies using different technologies would compete in offering telecom services. It was also that the incumbents would be required to make their lines and switches available, at a reasonable cost, to new competitors.

Unfortunately, the incumbents have skillfully used their monopoly profits to wage a jihad against competition, aided and abetted by activist judges and federal regulators who have decided to substitute their own deregulatory agenda for that of elected officials.

After years of waging legal and regulatory guerrilla warfare, the regional Bell companies have not only killed off the legion of well-funded upstarts offering lower-priced service, but have even been able to force giants such as MCI and AT&T into a strategic retreat from the residential phone business. The FCC may codify that victory today when it issues regulations that, in effect, will allow competitors to hook into Bell networks only when competing for small-business customers in rural and outer suburban areas. Even that is likely to be challenged by the Bells in court.

Meanwhile, cable companies are on the verge of winning regulatory approval for the right to decide which Internet or telephone service their customers can receive over their lines. The FCC has effectively embraced the industry position. This spring, the Supreme Court is likely to affirm it as well in a case involving an Oregon municipality that had the temerity to impose an open-access requirement on its cable franchise.

With the prospect that consumers will have only a choice between one cable and one phone company for all their telecom services -- a duopoly in which both sides will see the folly of getting into a price war -- wireless remains the last hope for robust telecom competition. Unfortunately, with the FCC and the Justice Department's antitrust division on extended holiday, the two largest wireless providers are now in the hands of Baby Bells: the eponymous Verizon Wireless, which it actually owns with Europe's Vodafone, and Cingular-AT&T, owned jointly by SBC and BellSouth.

These captive wireless companies can hardly be expected to offer a complete bundle of telecom services in competition with the Baby Bells that own them. And up to now, there has been a gentleman's truce among the Bells that allows them to compete for wireless customers but shy away from trying to poach on each other's local and long-distance customers.

Which brings us back to Sprint-Nextel. The merged company would be the only independent wireless provider with the scale, scope, technology and management heft to give the cable and telephone monopolists a run for their money. No doubt Verizon's pugnacious general counsel, Bill Barr, has been busy dreaming up ways to try to scuttle the deal -- including Verizon making its own bid for Sprint, or making a head-fake in that direction. If FCC Chairman Michael Powell were the consumer champion he fancies himself to be, he'd send back word to bully-boy Barr that any funny business could jeopardize Verizon's proposed purchase of badly needed spectrum from NextWave, now pending before the commission.

Steven Pearlstein will host an online discussion at 11 a.m. today at

www.washingtonpost.com. He can be reached at pearlsteins@washpost.com.


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