The Titans Of Telecom Face Off

Verizon spokesman Peter Thonis declined comment on whether the New York-based company might be interested in Qwest, and he reiterated the company's long-standing position on Vodafone's stake in Verizon Wireless.

While Whitacre has a reputation for boldness, Seidenberg is pursuing what many in the industry regard as a more audacious and costly strategy of running fiber-optic cables right to people's homes to carry what he hopes will be increasing video and high-speed Internet traffic. It is far more expensive to run new fiber-optic cables to customers' homes, but the technology allows for the transmission of more data than traditional copper wires because glass fibers can carry data faster.

Verizon is spending billions of dollars to build out its new all-fiber network, while AT&T is taking a less-costly approach by running fiber-optic cable to neighborhoods and using copper wires from there, which may allow it to offer such services at lower cost, albeit with less bandwidth. Bandwidth is the rate that information can be transmitted along a communications line.

"The risk associated with [Verizon's fiber-optic] build-out is higher. That risk may be acceptable because the returns are so great -- lots more bandwidth," said Ellen Daley, an analyst with Forrester Research Inc. "The risk on the AT&T side is less, and the gain is less as well."

Analysts said that one advantage to AT&T's strategy is that it may be able to build its high-speed network faster than Verizon, allowing it to achieve economies of scale and to negotiate discounts from content providers as it competes directly with cable companies.

Consumer groups said the AT&T-BellSouth merger would probably lead to higher prices, arguing that the telephone companies and the cable companies will effectively be a duopoly with little interest in aggressive competition.

While the consensus view among analysts was that the merger would be approved, the concentration of power could still trip some concerns on Capitol Hill or among regulators, especially when it comes to open access on the Internet.

"These companies were going to compete against each other. Instead, we have just the opposite," and that makes it all the more important to ensure that these companies don't become gatekeepers of the Internet, said Rep. Edward J. Markey (D-Mass.), the ranking Democrat on the House subcommittee on telecommunications. "The United States needs open networks."

As a condition of approval for both the Verizon-MCI and SBC-AT&T mergers last year, the companies agreed not to impose restrictions on Internet traffic, which in effect would enable some programs to work better than others. That provision sunsets two years after the close of those mergers.

In recent months, Seidenberg, Whitacre and BellSouth chief technology officer Bill Smith have all said they would prefer a system that would allow the carriers to charge to carry some kinds of traffic -- statements that have prompted concern from Internet companies such as Google Inc., which rely on Internet pipes to reach consumers.

With the latest proposed merger, critics of further consolidation say consumers, regulators and software companies should seek to codify "network neutrality" into law for all carriers.

"This time around, this merger should put media and content providers on high alert," said Jason Oxman, vice president of regulatory affairs for Comptel, an association of competitive carriers. "This could be the end of the line if the Internet community doesn't recognize the threat to the open Internet."

Federal Communications Commission Chairman Kevin J. Martin, who initially opposed the network neutrality provisions in the earlier two mergers but voted for them in the end, did not tip his hand yesterday.

"We will carefully weigh the information presented, examining any allegations of specific harm in individual markets and the potential benefits for the deployment of new services," he said in a written statement.

Staff writer Yuki Noguchi contributed to this report.