• United States

RBOCs: And then there were three (or maybe one)

Mar 13, 20063 mins
AT&TMergers and AcquisitionsNetworking

In 1984 the old AT&T monolith was broken up into seven RBOCs and a long distance and manufacturing group that retained the AT&T name. A dozen years later a revision of the Telecommunication Act touched off a decade of telecom mergers and divestitures with the result that today there are only four major telecom operating companies providing local, long distance and cellular service in the U.S. A number that will reduce to three if the proposed AT&T acquisition of BellSouth goes through.

That reduction may or may not make any real difference.

I fully expect that the FCC will think that this acquisition does not negatively affect the level of competition for phone service and may, as it has done many times in the past (for example) claim that the deal will “facilitate competition.”

For once I might agree, at least on part of this conclusion. The acquisition will not harm competition for local phone service between the RBOCs because there is none today. In spite of promises made at the time of the AT&T breakup, none of the Bells seriously tried to invade the geographic territory of the others. They could all merge again into one company and it would not diminish the non-competition in this area.

There has been competition in other areas, specifically long distance and wireless, but neither of those will be impacted much by this deal since the new combined company picks up only one player in each category. There has been some competition for the enterprise market that might be slightly reduced by this acquisition.

The mantra from the FCC over the last few years has been that the real competition will come from alternate technologies. For example, the FCC assumes that cable TV-based voice service will compete with the traditional line-based phone service from the Bells, or that the Bells could offer cable-TV like video services to compete with the cable TV companies. This proposed acquisition gives the FCC another chance to spout that mantra.

Should you care about AT&T buying BellSouth? I do not know. Obviously the gargantuan new company as well as a possible gargantuan Verizon/Qwest combination someday and giant merged cable TV companies that may follow are not going to make it easier for customers’ voices to be heard in Washington, D.C. The bigger these companies get, the more reluctant Washington will be to let them fail and the companies will use that to their advantage.

Many of us have high hopes for the Internet as a competitive force for voice and video, along with data. But unless there are strong regulations requiring network neutrality, the Internet, at least for home use, will just be a captive pipe owned by a telco or cable TV company and will not be a competitive factor (See Father knows best about net neutrality). I see no reason to think that cable TV companies and telcos, both of which have an incentive to try to extort money from content providers, will try to compete on a basis of network openness.

Municipal and wireless ISPs may change the picture, but not soon. For the next decade at least I expect we will have to rely on regulation or the kind hearts of the carriers.

Disclaimer: I’m not sure that even the Harvard med school could find a kind heart in a carrier, but I did not ask them for an opinion so the above is mine.