Double Wedding For Phone Giants?

The nation's two biggest local phone companies have received the go-ahead from federal antitrust regulators to combine with the two largest long-distance carriers.

The Justice Department on Thursday cleared the mergers of SBC Communications Inc. with AT&T and the merger of Verizon Communications Inc. with MCI Inc. without the major asset sales that critics said would be needed to ensure adequate competition.

The Federal Communications Commission must also approve the mergers, and that could happen as early as Friday when the agency meets for its monthly public meeting.

FCC Chairman Kevin Martin supported the mergers, but it was not clear if the two Democratic commissioners on the panel would go along. Because the commission is split between two Republicans and two Democrats, Martin needs the support of at least one Democrat for approval.

The mergers are being denounced by at least two major consumer groups.

"By allowing the top two telecommunications giants to buy up their competitors, the Justice Department told consumers they deserve little to no choice when it comes to phone, wireless and high-speed Internet providers," said Mark Cooper, Consumer Federation of America research director.
He says that includes newer technologies such as phone service over the Internet. "Small companies that are aggressively trying to offer alternative phone service," said Cooper, "will be big-footed by the new AT&T and Verizon."

Gene Kimmelman, senior policy director at Consumers Union, said the Justice Department decision will eliminate regional competition, leading to fewer choices for consumers and increasing or inflated prices for local, long-distance, high-speed Internet and wireless service.

"This is an earth-shattering reversal of competition policy from the agency that 21 years ago broke up the Bell monopoly and today is coddling the dominant Bell companies who seek to re-monopolize each of their regions," said Kimmelman. "Rubber-stamping these mergers is an embarrassing milestone in this nation because it puts an end to any real hope of head-to-head telephone competition."

Verizon senior vice president and deputy general counsel John Thorne disagrees with that contention. The Justice Department's approval, he argues, proves "that the transaction is pro-competitive and will not lessen competition in any market."

SBC senior executive vice president and general counsel James D. Ellis called it a "fair and impartial determination that ... the merger of SBC and AT&T will not harm competition."

The SBC merger, valued at $16 billion, won't be the end of the AT&T name. SBC, based in San Antonio, plans to change its corporate name to the iconic AT&T, company officials said. New York-based Verizon will keep its corporate name after the $8.5 billion merger with MCI.

The Justice Department required Verizon and SBC to lease to smaller competitors several hundred unused or "dark" lines that run to buildings serving mostly business customers. The leasing is required in 19 metropolitan areas where the companies, either SBC or Verizon, would be the only providers.

The Justice Department says that without that requirement, the mergers would mean higher prices for certain customers in eight metropolitan areas in Verizon's territory and 11 metropolitan regions in SBC's area.

AT&T and MCI dominate the market for business customers, and the mergers would enhance the base of business customers for Verizon and SBC. The deals would also expand their national and international presence.

For the past 10 years, local phone companies have been engaged in a fierce battle with long-distance companies for customers, with the local carriers emerging largely victorious.

Jeff Kagan, an independent telecom analyst in Atlanta, points out that the merged phone giants will be competing with cable companies - as the cable industry offers phone and Internet services and the telephone companies offer video and Internet services.

"It's not going to be separate sectors," he said. "It's going to be single companies that sell all these services."

Verizon and SBC are still awaiting approval from several states. SBC expects its merger to close by the end of the year; Verizon expects to close by late this year, or early next year.