Telecom mega-mergers not all bad

Some contend that such transactions may be the only way to foster positive change for users.

By Tim Greene and Denise Pappalardo
Network World, 09/28/98

Regardless of Federal Communications Commission comments to the contrary, carrier mega-mergers won't necessarily kill the dream of true telecom competition.

Short term, the mergers may slow development of new services by big carriers, but industry participants say upstart competitive local exchange carriers (CLEC) looking to bring new choices to customers should continue to thrive.

In fact, some CLECs welcome the big mergers because the deals promise to bloat and distract the established carriers, opening up business opportunities for nimbler newcomers.

Recently, as the FCC approved the merger of MCI and WorldCom, FCC Chairman William Kennard issued a vaguely threatening statement that the commission will look askance on such mergers in the future.

He said pending mergers of long-distance companies will be judged differently. "Once this merger is consummated, the industry will once again be . . . just a merger away from undue concentration," Kennard said.

But some customers say mergers among large companies may be the only way to shake up the market and generate new services.

"Without mergers, markets will look very much like they do today," says Mark Jamison, director of telecommunications studies at the University of Florida in Gainesville. "New entrants will continue to have to negotiate with incumbents that have little interest in opening their markets if the only payoff is that they lose customers."

That argument could be used by SBC Communications in its bid to merge with fellow regional Bell operating company Ameritech.

SBC says its merger with Ameritech will increase competition because SBC has committed to entering the top 50 telecom markets in the U.S., including many outside the carrier's current territory. SBC says competition will thrive as other Bells and carriers retaliate against SBC by trying to cut in on its traditional local telephone business.

SBC says it does not think Kennard's comments were directed at RBOC mergers, and it believes the SBC-Ameritech union will be approved.

Just having the approval pending has made SBC easier to deal with for Alle-giance Telecom, according to Allegi-ance CEO Royce Holland. Allegiance relies on SBC for access to local lines.

"In comparison to one year ago, SBC is on its best behavior in working with competitors," Holland says.

As a condition to the merger of RBOCs Bell Atlantic and NYNEX, the FCC demanded that the Bells install gear so CLECs could electronically file orders and trouble tickets with Bell Atlantic, Holland says.

That kind of quid pro quo forces RBOCs to be more receptive, says Holland, who figures SBC and Ameritech will need to go beyond what Bell Atlantic and NYNEX needed to do for FCC approval.

While Holland sees benefits to the mergers, some customers are nervous that service quality will be hurt as carriers try to integrate their business operations and networks.

"It's no small task to integrate multivendor networks and accounting systems," says Dwight Gibbs, chief technical fool at The Motley Fool, a financial advisory firm in Alexandria, Va.

The Motley Fool is not relying on Bell Atlantic, the company's LEC, for anything but local dial tone, Gibbs says. But if the financial firm was subscribing to more important data services, he says he'd be on the phone with his sales representative to get details about systems integration between Bell Atlantic and NYNEX.

Other users contend that the creation of ever-larger phone companies via mergers will result in less customer choice.

"The idea behind the Telecommunications Act was to increase competition, and the more these mergers happen, the more the industry becomes an oligopoly," says David Norton, a network architect at American Standard Companies, a Piscataway, N.J., company that manufactures air-conditioning, automotive, medical and plumbing equipment. "And an oligopoly in the communications industry will lead to price fixing."

American Standard's long-distance service providers work with various local telephone companies to support the manufacturer's global WAN, Norton says.

Daniel Briere, president of consultancy TeleChoice in Boston, says mega-merger benefits will come to users, but carriers should not get users' hopes too high too soon. In particular, carriers should be sure to synchronize their service delivery systems upon merging so that the unified company can provide flawless customer service, he says.

"I would rather lose the customer before the merger than after," he says. "Losing a customer after the sale pretty much guarantees that you have lost them forever."