MCI and AT&T Leave Little Guys Behind

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By Yuki Noguchi

Thursday, March 3, 2005; Page E01

Lobbying against the regional Bells is about to become a lonely cause for XO Communications Inc. of Reston.

For years, XO, MCI Inc. and AT&T Corp. were more or less comrades fighting regional phone giants such as Verizon Communications Inc. and SBC Communications Inc. to open up local markets and get access to the Bells' facilities. Now MCI and AT&T plan to merge with the very regional phone giants they lobbied against -- Verizon and SBC.

XO is a relatively small company, with about $1 billion in annual revenue and 5,000 employees. The much larger AT&T and MCI bankrolled many of the battles over issues central to the local phone industry and funded advocacy groups to back them up.

But now, SBC is buying AT&T for $16 billion, and Verizon has agreed to buy MCI for $6.75 billion. Qwest Communications International Inc., another regional phone company, is also bidding for MCI. That dries up a huge chunk of funding and leaves XO among the handful of small telecommunications companies that aren't part of the growing Baby Bell phone empire.

"It's going to be a big decrease in funding when they walk away," said Heather B. Gold, senior vice president for government relations for XO, which opened a regulatory office in the District after it acquired another independent telecom company, Allegiance TelecomInc., last year. "We will have to build more coalitions [among the smaller companies] to replace the single or double source of support," she said.

XO didn't always have the same interests as AT&T and MCI. XO doesn't sell to residential consumers, for example, and owns its own network in most major cities. It leases high-capacity lines used for business Internet connections.

AT&T and MCI relied on regulations that allowed them to lease local lines from the regional companies at discounted rates and resell local phone service under their own brands. AT&T and MCI fought vigorously to keep those discounted rates in place, but they lost the battle and were forced to pull back from the consumer phone business.

This year AT&T and MCI won't be with XO but against it as XO fights approval of the mergers in front of the Federal Communications Commission.

"We plan to lobby against these mergers as anticompetitive," Gold said.

The mergers come at a time when companies like XO are already weakened by other business dynamics. XO has been in and out of bankruptcy protection, and in the Washington area alone, dozens of telecommunications companies collapsed with the technology crash that started in 2000.

Companies like Teligent Inc., E.spire Communications Inc., Net2000 Communications Inc., and WinStar LLC -- which were never lobbying powerhouses to begin with -- fell into bankruptcy and off the radar screen.

In recent years, AT&T actively funded advocacy groups such as Voices for Choices, which paid for television and newspaper advertisements against Bell-backed legislation that would have hurt the companies trying to compete in the local markets. It also funded studies for third-party telecommunications groups and associations.

Many of AT&T's hired guns are expected to stop lobbying for non-Bell companies when AT&T becomes part of SBC, according to industry sources.

Those include the LawMedia Group, a strategy group headed by former House Judiciary Committee minority counsel Julian Epstein, and DCI Group, another lobbying strategy group. Also likely to exit the competitive telecom scene with the AT&T merger: Steve Ricchetti and Charlie Black, well-connected Democratic and Republican strategists, respectively, and co-chairmen of Voices for Choices.

AT&T general counsel Jim Ciccone, regarded as one of the industry's most effective lobbyists, may even join forces with SBC, making that regional giant even more effective against smaller rivals, some say. He declined to comment.

"Clearly, it's a very different ecosystem without AT&T and MCI," said Andrew D. Lipman, who leads the telecommunications practice at Georgetown-based Swidler BerlinLLP, a law firm that represents MCI and represented dozens of upstart companies allied with AT&T and MCI. "To some extent it's like the U.S. and the U.K. pulling out of NATO."

Lipman said AT&T was a critical and much-heeded voice, not just on Capitol Hill and at the FCC, but at the state level, where telecommunications policies are hammered out at state utilities commissions and legislatures.

"AT&T has offices in virtually every state capital," public utilities commission and attorney general's office, Lipman said. That is matched by only the regional Bells, which have their own lobbying infrastructure to counter that, he said. "There is a recognition that the other players are going to have to pony up to the bar and pay more for their advocacy."

That reality is reflected in the fate of the competitive industry's trade associations, which this week merged into a single entity.

In 2003, the Competitive Telecommunications Association (CompTel), which represented some of those local companies, merged with the Association of Communications Enterprises (Ascent), another industry association, as membership numbers declined.

This week, the other remaining industry association representing these independent telecommunications companies, ALTS, or the Association for Local Telecommunications Services, merged with CompTel/Ascent. The combined firm is called CompTel/ALTS.

"I feel sadness; there's no question about it," Ernest B. KellyIII, president of Ascent until 2002, said about the fate of the hundreds of small companies that have gone under. At Ascent's height in early

2000, it had more than 850 members. Now the combined entity has about 370. "They still have a voice," Kelly said, "but they won't have the resources and they won't have the impact."

Copyright 2005 The Washington Post Company

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