In mergers, aid for the consumer?

Looking to telecom's future, US officials see behemoths as a spur to

Huge tele-communications deals are forcing Washington to redefine its relationship with one of the nation's most dynamic industries - a task one federal regulator likens to redesigning a Boeing 747 in flight.

So far, antitrust agencies have taken a measured approach to mergers and acquisitions they might have balked at a few years ago. Their aim is to encourage the spread of new technology capable of eroding old monopolies in phone and cable TV service.

But one telecom area is complicating their task by remaining remarkably resistant to competition: old fashioned, copper-wire-in-the-wall local phone service.

"Probably the No. 1 thing [regulators] care about is opening up local phone service, still," says Robert Litan, an antitrust expert at the Brookings Institution here.

A case in point is the Federal Communication Commission's Oct. 6 approval of SBC Communications Inc.'s $72 billion takeover of Ameritech Corp., forming a huge local phone firm. On its face, the merger would appear to lessen the possibility for competition to provide basic dial-tone service. In joining together, San Antonio-based SBC and Chicago-based Ameritech will control one-third of the nation's local phone lines in a huge swath down America's midsection.

In some ways, it represents a step back to the communications future.

The breakup of the old Ma Bell AT&T, in 1984, created seven regional Baby Bells. But the Baby Bells have been recombining ever since, by swallowing one another up. In the wake of the SBC-Ameritech deal, only four are left intact.

Indeed, some critics warn that Washington is looking the other way while a monster with many of the old AT&T's bad traits arises from telecom's Black Lagoon.

"To date, the Bell companies have avoided many of their obligations to open their networks to competition," says John Windhausen Jr., president of the Association for Local Telecommunications Services, a Washington-based group that seeks and promotes open access to local phone lines.

But the Federal Communications Commission (FCC) believes the merger will enhance local competition because, in essence, federal regulators have told the firms involved that it must.

Under terms of the approval, the firms must meet a series of 30 pro-competition conditions. SBC must agree to offer low prices to competitors who want to lease parts of its network, for instance. That means it might be put in the position of subsidizing its own rivals.

Perhaps more important, the new SBC Corp. has agreed to enter the local phone business in 30 new markets outside its home territory within 30 months. The FCC is forcing it into the ring with the remaining Baby Bells.

Government regulators are taking the firms' urge to merge and using it as "a lever to open up new markets for competition," FCC Chairman William Kennard said in announcing the approval of the SBC-Ameritech deal.

More competition in the local phone arena would make it easier for regulators to make their next crucial decision: what to do about the proposed merger of long-distance giants MCI Worldcom and Sprint.

That's because most of the remaining Baby Bells are eager to enter the potentially profitable long-distance business. Yet under the 1996 Telecommunications Act, the Bells can't launch long-distance services until they can prove they are battling competition in their local markets.

Washington would certainly view the historic MCI-Sprint combination more favorably if a few Baby Bells were geared up to do battle in the small-change-a-minute long-distance wars. Their resources could make them worthy foes of a new firm that would otherwise control 36 percent of the $110 billion US long-distance market.

"Obviously, the big 800-pound gorilla standing in back of this merger is the possibility of [Bell company] entry into long distance," says Thomas Hazlett, an economist and telecommunications expert at the American Enterprise Institute here.

Absent such a development, MCI's purchase of Sprint will no doubt face tough scrutiny. The proposed new firm and giant AT&T would together control upwards of 80 percent of the market.

FCC Chairman Kennard has publicly thrown down a challenge by questioning how the MCI-Sprint combination would benefit consumers.

"It's inconceivable that this would sail through without conditions," says Mr. Hazlett.

Continuing its attempt to nudge every telecommunications firm into competition with all the others in all services, the government also loosened its restrictions on cable-service ownership on Oct. 8. The move will help hasten the day when more consumers can choose high-speed Internet access and cable-delivered phone service, regulators say.

Specifically, the FCC adopted new rules that will count satellite-dish owners, as well as cable households, when figuring a cable firm's share of the market. This and other changes would have the effect of slightly raising the current cap on cable ownership - a 30 percent market share.

The changes will give AT&T more flexibility in its push to complete its proposed $58 billion purchase of MediaOne, if it survives a court challenge. The deal would create the nation's largest cable TV firm - one that would have broken the 30 percent market-share cap under the old rules.

(c) Copyright 1999. The Christian Science Publishing Society

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