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Alliance for Competition in Telecommunications and Consumer Groups Challenge SBC/AT&T and Verizon/MCI Mergers; Proposed Telecom Mega-Mergers Called ''Bad for Business and Bad for Consumers''

Posted on: Thursday, 23 June 2005, 15:00 CDT

Alliance for Competition in Telecommunications (ACTel) counsel Gary Reback, a nationally-recognized authority on antitrust issues, today joined with state consumer advocacy groups to challenge the mergers of SBC/AT&T and Verizon/MCI.

The group labeled the planned mega-mergers as "bad for business and bad for consumers" in a press briefing held at the Commonwealth Club. Voicing strong concern over the mergers with Reback were consumer advocacy groups including The Utility Reform Network (TURN) and the Office of Ratepayer Advocates (ORA). Reback presented market research by California Institute of Technology economist Simon J. Wilkie demonstrating the adverse impact of the proposed mergers on state businesses of all sizes.

The economic data shows that by eliminating the two largest competitors, AT&T and MCI, as independent providers, the mergers will severely affect service to business customers - driving competitors from the market, elevating wholesale prices up to 15 percent and cementing a "non-competition" pact between SBC and Verizon that puts customers at the mercy of monopoly providers in their respective regions. Analysis of the post-merger environment reveals the full negative force of the mergers:

-- Market Concentration and Reduced Choice. In Los Angeles alone, the availability of competitive choices in commercial buildings will decline 71 percent. SBC and Verizon will end up controlling service delivery in 99 percent of these buildings.

-- Rising Wholesale and Business Retail Prices. The evaporation of choice will raise wholesale prices for local access services as much as 15 percent, fueling higher retail costs for voice and data services used by business customers. Today, AT&T and MCI regularly bid to provide local access service at prices 50 to 60 percent below the special access rates offered by SBC and Verizon.

-- Collusion not to Compete: SBC and Verizon will continue to avoid competing with each other, even in cities where they operate side-by-side and could easily deliver the benefits of competition to customers. In Los Angeles, for example, SBC and Verizon territories abut but scarcely overlap. Verizon has achieved just 1.1 percent penetration in SBC territory, and SBC only 1.5 percent penetration in Verizon territory.

Wilkie concludes that in a post-merger world, the availability of choice will plummet and prices and market concentration will increase significantly. As the biggest customers of SBC and Verizon, AT&T and MCI are, in turn, the largest suppliers of discounted wholesale services to competitive providers. With AT&T and MCI eliminated as independent providers, competitive pressure on the Bells' wholesale pricing will disappear, with an inevitable downstream impact on retail prices to customers throughout the state and nationally.

"These giant mergers are larger and hold a greater threat of anticompetitive conduct than any other telecom merger in recent history," said Gary Reback. "For example, SBC and Verizon already exercise excessive power in California markets, and if the behemoths are allowed to absorb AT&T and MCI, that power will be limitless - to the detriment of customers."

Reback continued, "Ultimately, the final ruling on these proposed mergers - and the fate of any Californian with a phone who has relied on competition in telecom for the past two decades - rests with antitrust decision-makers at the U.S. Department of Justice. Before making any decision, both the California PUC and Federal Communications Commission should look to the opinion of these experts, who are now engaged in a months-long review of what bodes as the biggest concentration of telecom market power since the creation of Ma Bell itself."

Reback added, "The last thing that business and residential customers need is for regulatory authorities to allow the Baby Bells to reassemble the Bell monopoly over long distance and local service. Increasing SBC's and Verizon's market dominance will lead to higher rates for consumers as the few remaining competitive providers face higher prices for access to Bell facilities. The big shouldn't be allowed to get bigger by simply absorbing their competitors - they should earn it on a level playing field."

According to Wilkie's analysis, the mergers' impact on business customers may be readily projected from SBC's and Verizon's current pricing and business practices, which would be exacerbated if the mergers are approved as proposed.

In light of the fact that AT&T and MCI bid most often, at prices 50 to 60 percent cheaper than SBC and Verizon, with AT&T and MCI eliminated from the market, leasing prices would rise to at least the next lowest bid, and likely higher. Because there will be fewer bidders in the market, there will be a significant reduction in downward pricing pressure, resulting in a winning bid that is much closer to the Bells' posted special access rates.

Wilkie also found that SBC and Verizon would have every motivation to continue engaging in tacit collusion not to compete in one another's territories. Such collusion limits their head-to-head interaction and drives prices higher - by 7 to 12 percent in other industries with similar circumstances.

In Los Angeles, SBC and Verizon operate side-by-side. Competitive providers are present in over 20,000 business locations - 13,111 in SBC territory and 7,369 in Verizon territory. Yet despite this opportunity to compete with one another, SBC is the competitive provider in only 113 locations in Verizon territory. Verizon doesn't fare much better, serving as the competitive provider in only 146 locations in SBC territory.

Source: Business Wire

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