What's the Bill for Phone Mergers?
COMPETITION has been reduced a tad in the crowded long-distance phone market with the announced acquisition of Telecom USA Inc. by MCI Communications Corporation. MCI is the second-largest long-distance provider in the United States, behind mighty American Telephone and Telegraph Company (AT&T), which - with slightly over 70 percent of the market - continues to dominate long-distance. Telecom is currently No. 4.
The MCI-Telecom linkup must be approved by federal and state regulators, as well as Telecom's stockholders. The larger question, of course, is whether the merger - only the latest in a series of consolidations within the long-distance sector - works against price competition.
The justification for the breakup of AT&T back in the early 1980s, after all, was to spur competition. To a large extent, that has happened. The ``Baby Bells'' for local service, have, with a few exceptions, flourished. AT&T had some tough moments at the outset, but in recent years the company has regained much of its former prestige and earnings momentum. And AT&T's rivals, such as MCI, Sprint (No. 3 in the phone wars), and others have proven to be innovative.
The absorption of Telecom by MCI doesn't change the long-distance market much, particularly for business users, where competition is keenest. Atlanta-based Telecom has focused on small and medium-sized businesses, mainly in the South and Midwest. MCI is national, serving households and businesses. And AT&T's rivals have seen their business grow faster than AT&T's.
Yet, it might have been more comforting had it been No. 3 Sprint, rather than No. 2 MCI, that bought Telecom. Sprint may now feel a necessity to go out and find its own partner, thus further eroding competition.
Currently, long-distance competition is vigorous. Regulatory agencies must ensure that the disappearance of long-distance phone companies such as Telecom doesn't put upward pressure on prices - or reduce services. Any consolidation that pushes up already high-enough long-distance charges is a call that warrants a quick disconnect.