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The Behemoth Is Dead. Long Live the Behemoth

So does it make any sense for SBC to buy AT&T? Will the combined company be any better able to compete, or is SBC simply enamored of a vision it sees in the rearview mirror? Even though the merger symbolizes the technological advances that have changed the industry, the new Goliath could also become a victim of the next wave of innovation.

From the consumer perspective, the telecom industry changed more between 1995 and 2005 than it did between 1965 and 1995. In 1995, consumers still distinguished as they had in 1965 between local and long-distance calls -- thus, the once familiar phrase "I am on long distance"; few consumers used wireless services; virtually none were using the Internet (let alone broadband) connections. In 2005, long distance is a vanishing concept (and industry); there are more cell phones now than land lines; and more consumers connect to the Internet with broadband connections, such as cable modems or DSL, than with dial-up ones.

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Today many consumers are asking whether the recent spate of consolidation will deprive them of the benefits they have received from competition and technological change. In the wireless market, for example, Sprint's merger with Nextel will reduce to four the number of major national wireless providers. From an antitrust perspective, four rival players in a market is generally sufficient to keep them all on their toes. But any further consolidation is likely to -- and should -- raise serious concerns for policymakers.

In the broadband marketplace, the foremost concern is not merger policy, but how regulation can spur more competition. Today, most consumers only have two choices for high-speed service -- either their local telephone company's DSL offering or the cable companies' cable modem service. Policymakers thus need to figure out how to promote the development of new services that will bring additional competition and innovation in this market. The most promising prospect: reforming the regulation of wireless spectrum so that more of it can be used to expand wireless broadband services.

That can't be done by simply rewriting the 1996 Telecommunications Act. The rapid rate of technological change means that any future law risks being outdated by the time it's written -- the regulatory equivalent of fighting yesterday's war. The current law's ability to adapt to technological change will be tested this spring when the Supreme Court addresses whether the FCC enjoys the flexibility needed to regulate the broadband market.

If the court concludes that the FCC must regulate this market in the same manner as "plain old telephone service," Congress may have no choice but to revisit the 1996 Act to develop a new framework. And to avoid landing in the same position as we are now, Congress will have to write a more succinct law that leaves considerable discretion to the FCC to regulate where necessary to deal with market failures that might arise as technology evolves.

In our time, the great achievement of AT&T -- bringing "plain old telephone service" to all Americans -- will be eclipsed by the transition to an environment characterized by broadband and wireless services. Unlike the era of AT&T, this new era will not be shaped by a regulated monopoly. But we still need a sophisticated and active FCC to intervene where the market fails to deliver benefits to consumers. With the help of smart policy, this new era will be far more complicated than the more staid world of Ma Bell, but far more rewarding as well.

Author's e-mail:

phil.weiser@colorado.edu

Philip Weiser is an associate professor of law and telecommunications at the University of Colorado and co-author of "Digital Crossroads: American Telecommunications Policy in the Internet Age" (MIT Press). From 1996 to 1998, he was a senior counsel in the Justice Department's antitrust division.


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