The Return of Ma Bell? Hardly!

Published September 1, 2006

The proposed merger of AT&T and BellSouth encountered resistance in Georgia last month. While more than a dozen other state regulators have given the merger their approval, some consumer advocates are calling on the Georgia Public Service Commission to block the merger or attach costly conditions to it. That would be a costly mistake for everyone.

Some of this is sentimental support for a favorite corporate son. Headquartered in Atlanta, BellSouth is a major corporate presence in Georgia, and the merger would likely absorb the name and the brand into AT&T.

However, most opponents, be they inside or outside Georgia, express the unfounded fear that AT&T is re-assembling itself into the same phone monopoly that was broken up as part of the 1984 antitrust settlement. That assertion willfully ignores massive changes in the telecom industry over the past 22 years.

Even though AT&T and seven “Baby Bells” have re-consolidated over the past several years, the market for telecommunications remains hotly competitive and basic phone service has never been so inexpensive. In fact, competition is driving mergers like this as the geographically fragmented industry tries to attain better economies of scale by reaching a national marketplace. AT&T and Verizon may have become larger corporations over time, but they do not overwhelm their competitors in size, scale, and capitalization.

For example, Comcast announced its Voice over Internet Protocol (VoIP) service gained 306,000 new accounts in the second quarter–spurring its revenue growth for the period. But cable isn’t the only option for consumers. Taking note of rising demand for broadband, Google and Earthlink are pouring millions into large-scale wireless data technologies that aim to bypass phone and cable infrastructure. Online auction giant eBay purchased Skype, the Internet telephony pioneer, for $2.6 billion. Vonage went from start-up to IPO in five years.

Meanwhile, BellSouth is steadily losing revenues in its one-time core segment of phone service. A look at its past three annual reports shows the number of residential access lines dropped from 16 million in 2001 to 12.4 million in 2005.

Monopolies, by definition, can’t lose business, yet BellSouth clearly has. Monopolies, by definition, are insulated from competitors, yet BellSouth obviously is not.

Merger opponents also forget that at the time of its break-up, AT&T not only monopolized phone service, it monopolized the entire supply chain. Today’s phone companies support a vibrant and world-leading manufacturing sector.

Scientific-Atlanta, a Georgia-based company that employs 7,700 people, is one of AT&T’s major suppliers. As part of a $195 million contract announced last year, Scientific-Atlanta is building the innovative IP set-top boxes used with AT&T’s U-Verse video service, which the company will likely expand into the BellSouth region after merger is complete. That means more business for Scientific-Atlanta and its suppliers and more video options for Georgia’s consumers.

Other telecom equipment manufacturers in the BellSouth region who stand to benefit from the merger include Nortel Networks in North Carolina and Harris Corp. in Florida.

In the final analysis, what’s the alternative? How will the telecommunications needs of Georgia’s consumers, and the state economy, be served by a weakened BellSouth? AT&T brings new investment and a growth strategy.

Those who fear that allowing AT&T to merge with BellSouth will resurrect the old Bell monopoly simply ignore the technological and organizational changes that have swept the telecommunications industry during the past two decades. They also stand in the way of a corporate reorganization that would benefit consumers and businesses in Georgia and all of BellSouth’s territory.

For everyone’s sake, this merger should be allowed to proceed.

Steven Titch ([email protected]) is a senior fellow with The Heartland Institute and managing editor of IT&T News.

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