Mergers do not Equal Monopolies in Telecom World

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BY RICHARD E. WAGNER

Two major telecom mergers are now under way. SBC is seeking to
acquire AT&T, while Verizon is seeking to acquire MCI.

These proposed mergers have provoked a good deal of opposition, on the
ground that they would restore regional versions of the nationwide
monopoly AT&T possessed prior to its being broken up in 1984.

SBC and Verizon each hold more than 80 percent of the wire-based
connections in their regions. Facing a regional monopoly is no
different from facing a nationwide monopoly. In both cases, if you
want to place a call using a conventional land-line telephone, you
have no choice but to use the monopolists' wire.

Should we therefore oppose these mergers? No. Even if SBC and Verizon
were to hold 100 percent of the wire-based connections in their
regions after the mergers (which they wouldn't), they would hold
nothing resembling the old AT&T monopoly. Sweeping changes in the
telecom marketplace in the past 20 years make such a monopoly
impossible these days.

Prior to AT&T's breakup in 1984, if you wanted to speak with someone
without having to visit her, you could do so only over wire owned by
AT&T. That was a pretty strong monopoly position for a company to
hold, but it's no longer the case.

Various forms of wireless service have emerged to compete with
land-line service. The number of wireless connections now exceeds the
number of wire-based connections in the United States. The majority of
long-distance calls travel through air and not over wire. A full
one-third of local calls now travel over air as well.

The emergence of cable television is another technological development
that is changing the telecom marketplace. Thanks to billions of
dollars of private investment, cable wire is nearly as prevalent as
phone wire. Where cable began simply by offering better TV reception,
it now offers Internet access and a growing range of other video and
data services.

Cable companies generally outperformed phone companies in offering
high-speed Internet access. More recently, cable TV companies have
been offering phone service through the new VoIP (Voice over Internet
Protocol) technology.

So cable companies are becoming phone companies, thanks to the advance
of technology. At the same time, phone companies have found ways to
offer television programming over telephone lines. This summer, for
instance, Verizon has received permission to offer television service
in Herndon, Va.

The standard distinctions among phone, cable and computer companies
are crumbling away. Sprint, a traditional phone company; Motorola, a
traditional TV company, and Intel, a traditional computer company, are
engaged in a cooperative endeavor to pursue wireless technologies and
services. To which industry does this new hybrid belong?

The static notion of competition would have us think SBC and Verizon
are competing only against the likes of Qwest, Sprint and Level 3, all
traditional phone companies. While they are clearly doing this, they
also are competing against the likes of Comcast, Time Warner, Intel
and Microsoft.

Technology is revolutionizing the telecom landscape, and all kinds of
companies are competing to offer services that customers value.
Mergers allow companies to respond quickly to these rapidly changing
commercial opportunities created by new technologies.

In the preface to his epochal "General Theory of Employment, Interest
and Money" in 1936, British economist John Maynard Keynes lamented the
difficulty of "escaping from habitual modes of thought and
expression."  This difficulty is exhibited in spades when people refer
to telecom mergers as diminishing competition.

To the contrary, these mergers are signs of vigorous competition.
Competition is fundamentally about seizing future commercial
opportunities. Much of the regulation advocated and passed in the name
of encouraging or protecting competition protects competitors
instead. Little surprise, then, that most of the complaints against
the telecom mergers have been filed by competitors to SBC and
Verizon. They realize the market would become more competitive, not
less, as a result of these mergers.

To claim these mergers would promote monopoly is a claim that could be
made only by someone who has been sleepwalking through the past 20
years. They need to wake up and see how the telecom landscape has
changed.

Richard E. Wagner is a professor of economics at George Mason
University, Fairfax, Va.

Copyright 2005 Asbury Park Press. This column represents his opinion
only and not that of TELECOM Digest.

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