AT&T to bow out of seven states

If you’re not confused, you’re not paying attention.

Tom Peters

Dear Vorticians,

A political statement?

A rational assessment of future profit potential?

The beginning of the end for local telephone competition?

The death knell for traditional long-distance carriers?

All of these questions were used in the past week to describe AT&T’s decision to stop marketing local and long-distance services to new customers in seven states. AT&T says it will simply be uneconomical to serve customers in those states once the regional Bell companies – the incumbent local carriers – raise the rates they charge competitors for use of their local facilities. The Bells will likely be increasing those rates right after the elections in the fall, now that the Bush administration has decided not to challenge a federal court decision overturning the Federal Communications Commission rules that set the rates.

AT&T is not alone in its action. A much smaller competitive local carrier – Z-Tel – said it would stop marketing to new customers in eight states and the Wall Street Journal reported that MCI is thinking of exiting the consumer business entirely.

As readers of this newsletter well know, I think it’s time to get the federal government out of the business of regulating communications. The FCC’s decisions are routinely overturned by the courts, we lack a cohesive national communications policy to guide the FCC and the natural result is that customers and investors are left confused and concerned by all the regulatory/legal gyrations. (The FCC’s plans to relax restrictions on media companies were also falling apart last week, as the U.S. Senate moved to reinstitute earlier agency rules.)

In announcing its plans to abandon the states in question – and simultaneously lowering its revenue forecast – AT&T executives issued dire projections about the future of local competition. CEO Dave Dorman said “we foresee a future with less choice for consumers.”

FCC Chairman Michael Powell disagreed, as did the Bells, saying consumers have plenty of local service choices thanks to competition from cable, wireless and voice-over-IP. One industry trade association – pro-long-distance – called AT&T’s move the “beginning of the end” for telephone competition. Another trade group – more friendly to the Bells – called AT&T’s motives into question, saying the company targeted certain states, including Ohio, Missouri and Tennessee, that will be important in the upcoming presidential election in an effort to pressure or embarrass the Bush administration.

Whatever your view on the move, one thing is very clear. Instead of the week’s news being dominated by announcements of new services and new ideas in telecom, the focus was once again on regulations, politics and rhetoric. How can the U.S. hope to compete with the world’s emerging communications powerhouses when such conditions exist?

In the past, many of you have argued that the FCC continues to play a key role in the evolution of our industry. But I ask again: Isn’t it better to have no regulation than muddled regulation?

I hope my thoughts weren’t muddled, but in any case you can send yours to me at jgallant@vortex.net. Does AT&T’s move make sense? Is it grandstanding? What does it all mean for the future of telecom?

Bye for now.

VORTEX UPDATE:

On the VORTEX 2004 front, I’m thrilled to report that Microsoft is joining us up on stage. Dan’l Lewin, corporate vice president, .Net business development, will share Microsoft’s enterprise strategy and the .Net roadmap. Microsoft joins the other enterprise IT powerhouses – Cisco, EMC, HP, IBM, Oracle, SAP, Sun – and the emerging leaders of tomorrow that will speak at VORTEX 2004. To register or learn more, go to www.vortex.net.