A surprising trip down Bell partnership lane

By David Rohde
Network World, 01/29/01

Apologists for mergers such as SBC Communications/Ameritech and Bell Atlantic/GTE, both of which resulted in exactly the customer service problems that critics predicted, say users should be patient.

They note that SBC and the new Verizon have pledged to use their scale to break out of their territorial boundaries and start competing with each other. The idea is to generate the kind of mass-market competition across the country that the seven original Bells avoided, and that no competitive local exchange carrier (CLEC) can ever hope to provide.

The evidence for these benefits? SBC and Verizon have recently allied with local, national and international partners in preparation for the day when they are going mano a mano across the country. Examine these alliances, however, and you'll notice a fascinating pattern:

?? Verizon has a deal to resell Intermedia's frame relay service outside Bell Atlantic states.

?? Intermedia has a deal to sell global carrier Infonet's international services.

?? Infonet has a deal to use national wholesale provider Williams Communications to connect to 60 U.S. cities.

??And who holds a minority equity stake in Williams? . . . SBC.

There you have it: Verizon and SBC aren't competitors, they're bookends in a big partnership chain. Maybe now they all should merge into one happy family!

Kidding aside, the question is what's going to happen to the firms along the Verizon/SBC axis. Take Intermedia, an established provider of not only frame relay but also local fiber capacity and shared-tenant services in many markets.

Technically, Intermedia was recently acquired by WorldCom. But under a government order, WorldCom must sell all of Intermedia except its hosting subsidiary Digex (which is all WorldCom wanted anyway). If Verizon and SBC are serious about national competition, now would be the perfect time for one of them to buy Intermedia from WorldCom.

Indeed, sources tell me that SBC, at least, has been looking over the carcasses of bankrupt and near-bankrupt CLECs to see if it can pick up out-of-region local networks. But buying Intermedia would seem to carry more operational advantages for the Bells because it's a much more mature type of CLEC. Even before signing those resale agreements, Intermedia specialized in network-to-network interfaces between its offerings and Bell frame/ATM services.

Verizon and SBC might hesitate because Intermedia is more mature, it has network nodes in numerous cities inside Verizon's and SBC's territories. If either Bell bought Intermedia, it would have to spin off most of Intermedia's network inside its territories because Verizon only has long-distance authority for New York and SBC only for Texas, Oklahoma and Kansas, and Intermedia carries data traffic state-to-state.

Maybe you see the solution. Verizon should buy Intermedia's SBC markets, SBC should buy Intermedia's Verizon markets, and they should split the rest. Instant competition! The only problem would be the resulting customer service mess. But when have Verizon and SBC ever worried about that?