Statement on Telecom Mergers Ruling

November 01, 2005
Steven Titch

(November 1, 2005 -- Chicago, IL) The Federal Communications Commission (FCC) announced on Monday that it will approve the mergers of SBC Communications Inc. with AT&T Corp. and Verizon Communications Inc. with MCI, Inc.

The following statement in response to the FCC's decision can be attributed to Steven Titch, senior fellow - IT and telecom policy for The Heartland Institute, a 21-year-old nonprofit research organization based in Chicago. Titch can be contacted for further information by telephone at 281/571-4322 (office) or 312/925-0464 (cell), or by email at titch@heartland.org.


The FCC's decision to approve the mergers of SBC Communications Inc. with AT&T Corp. and Verizon Communications Inc. with MCI, Inc. will result in two stronger companies with the national infrastructure and resources needed to extend broadband applications and services to all markets in the U.S. That means faster broadband rollout, better services, new technologies, and more choice for consumers and businesses across urban, suburban, and rural markets.

Unfortunately, in approving the merger the FCC extracted conditions that enlarge and prolong the regulatory schism that exists in the U.S. telecom industry. A portion of the industry still will be subject to one set of rules while others will not.

These conditions stem from misplaced concern, as suggested by Commissioner Michael Copps, that the mergers "write the epitaph" for telecom competition. That statement is baffling when newspapers have been filled with reports of high-profile companies such as EarthLink, Google, Yahoo, and eBay moving into the broadband telecom space.

This is hardly a group of shoestring start-ups. Google is capitalized at $88 billion, almost equal to Verizon's $90 billion. Yet Commissioners Copps and Jonathan Adelstein write as if players like Google are still so fragile they will fail without pre-emptive regulation. The truth is the communications industry is highly competitive and on the cusp of greater growth and innovation than ever before.

Among the conditions imposed by the FCC is a mandate to provide "naked" (unbundled) DSL. This is popular with consumer advocates, and the market has shown signs of heading in that direction on its own. The problem is that such rules create an environment where government is dictating to two companies within a larger competitive sector how they must package, manage, and sell services.

The FCC also has forced SBC and Verizon to maintain their below-cost unbundled network element (UNE) pricing for two more years, even though this price control scheme has slowed broadband deployment and hardly worked in creating sustainable competition. This simply is bad policy because it hamstrings market mechanisms that would work to the consumer's favor.

We agree with Commissioner Kathleen Abernathy that these conditions were unnecessary and will slow both companies as they seek to leverage their respective acquisitions for the benefit of customers.


Steven Titch (titch@heartland.org) is senior fellow - IT and telecom policy for The Heartland Institute, a national nonprofit organization based in Chicago. Among other publications, Heartland publishes IT&T News, a monthly newsletter addressing technology and telecommunications policy issues. For more information, call Ralph Conner, public affairs director, 312/377-4000, or email him at conner@heartland.org.