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A Telecom Capital No Longer

That war pitted the independent long-distance services led by MCI against AT&T and the seven regional phone companies that were spun off from it to transform the phone business from a monopoly to a competitive market.

AT&T and the spinoffs won that one. MCI may have carried the battle that opened up competition in the long-distance market, but its disastrous marriage to WorldCom pushed the company into bankruptcy and then the arms of the enemy.


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Telecom's World War II is underway, Cleland said. This time it's a multi-front war between the phone companies and the cable companies, between the phone companies and the technology companies working on ways to make conventional calling obsolete, and between the phone companies and the Internet.

MCI and Nextel will be influential in this war, but as parts of bigger companies.

AOL will be on the side of the cable industry this time because Time Warner is the nation's No. 2 cable company.

The most extreme threat facing the phone companies, Cleland said, "is that technology companies can figure out how to do voice over the Internet for free, or nearly free."

Millions of early adopters are already making calls over the Web using voice over Internet protocol. There are technology and voice quality problems, but if they can be conquered, the old-line phone companies will likely lose Telecom World War II.

Washington lawyers and lobbyists will be mobilized in the fight for the future of electronic communications. But they are not going to be the decisive combatants they were in the fight that began 30 years ago when William G. McGowan filed the lawsuit that won MCI the right to compete in the long-distance business.

Since then, competition has driven down the price of long-distance calls -- and the value of the long-distance companies. MCI was sold to WorldCom for $30 billion. After Chapter 11 reorganization, what remains of the MCI-WorldCom operation has attracted bids from Qwest Communications International Inc. and Verizon Communications Inc. that range from $6.75 billion to $8 billion.

Cheaper phone calls and cheaper phone stocks are the free market at work, dollars-and-cents examples of the "creative destruction" that capitalism can unleash.


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