title: And then there were three (or maybe

And then there were 3 (or maybe 1)

By Scott Bradner

In 1984 the old AT&T monolith was broken up into seven Regional Bell Operating Companies 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 telcom mergers and divestitures with the result that today there are only four major telcom operating companies providing local, long distance and cellular service in the US. A number that will reduce to three is 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 they have done many times in the past (for example, http://www.fcc.gov/Bureaus/Common_Carrier/News_Releases/1997/nrcc7059.html) claim that it will "facilitate competition."

For once I might agree with the FCC, at least on part of this conclusion. I agree that the acquisition will not harm competition for local phone service between the Regional Bell Operating Companies because there is no such competition today. In spite of promises made at the time of the AT&T breakup, none of the Regional Bells seriously tried to invade the geographic territory of any 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 all that 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 Regional Bells, or that the Regional 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 the gargantuan Verizon / Quest combination and gargantuan merged cable TV companies that may follow are not going to make it easier for the voice of the users to be heard in Washington. The bigger these companies are the more reluctant Washington will be to let them fail and the companies will use that reluctance to their advantage.

Many of us have high hopes for the Internet as a competitive force for both 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 http://www.networkworld.com/columnists/2006/022006bradner.html) I see no reason to think that cable TV companies and telco carriers, both of which have an incentive to try to extort money from content providers, will try to compete on a basis of the openness of their networks.

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.