Yertle the Turtle? AT&T Now "Two Mergers Away" from Reintegration

AT&T was divided into seven regional bell operating companies (RBOCs) as a result of protracted antitrust litigation that ended in the 1980's. The RBOCs basically were confined to local phone service and they were barred from the lucrative long distance business, where AT&T was to compete with newer long distance service providers such as MCI.

The goal of promoting competition, however, now seems more distant. In the Telecom Act of 1996, Congress allowed the RBOCs to re-enter the long distance business if the FCC found that the industry was competitive. The RBOCs were granted permission by the FCC to re-enter the long distance business, resulting in the demise of the newer and smaller long distance companies.

Instead of competing against one other, the RBOCs merged with other RBOCs (e.g., NYNEX and Bell Atlantic merged to form Verizon), and now the merged RBOCs are acquiring smaller companies and former long distance competitors (e.g., Verizon's acquisition of GTE and MCI).

Now, AT&T, the once broken-up monopoly, is merging with SBC, a large RBOC.

UTEX Communications Corporation, a disgruntled small competitor using voice over internet protocol technology (VOIP), in comments filed with the FCC, analogizes AT&T to Dr. Seuss' Yertle the Turtle: "I’m figgering on biggering and BIGGERING and BIGGERING and BIGGERING.” According to UTEX, "[w]e are only two mergers away from re-vesting AT&T with its old empire...."

Meanwhile, local phone competition from companies leasing wholesale network elements from the RBOCs is dying as a result of FCC and court decisions. Nevertheless, the New York PSC continues to deregulate more of Verizon's local service, despite Verizon's dominant position. This is being done on the ground that "intermodal" competition between alternative phone technologies such as cable and wireless justifies dispensing with regulation. The New York PSC erroneously assumed the only reason for regulation was the monopoly nature of phone service. Regulation exists not because of the number of providers but because of the importance to society of universal communications services at just and reasonable rates, no matter who provides it.

Today's local phone choices really boil down to two sources, cable and telephone. VOIP services still must go over a phone line (DSL) or a cable line to the home. A duopoly dividing the consumer market between a dominant phone company and a cable company is hardly likely to result in competitive prices and services over time. Once market shares are established, the companies are likely to have monopoly prices and not to undercut one another.

Wireless phone service is sometimes claimed to be additional competition to cable telephone service, justifying less regulation of Verizon. But wireless service is not a full substitiute for landline service, and in any event, Verizon is the major wireless provider in New York state. In opposition to relaxed regulation of telephone companies based on "intermodal" competition, PULP submitted comments showing that in recent years New York has lost ground in its effort to achieve the goal of universal telephone service.Telephone availability in low income households has declined. PULP recommendations that measures be taken to increase affordability of service through reform of the federal-state telephone Lifeline program were rejected by the New York PSC. Now there has been a steep reduction of participation in the lifeline rate program due to overly stringent eligibility requirements and defects in administration of the automatic enrollment program.

Also, Verizon is rapidly acquiring local cable franchises to provide television service in New York, in competition with cable. To the extent Verizon succeeds in replacing cable TV service, the availability of cable telephony as a competitor is reduced.

The Telecom Act of 1996 also adopted new measures to promote universal service, affordability, broadband service to rural and inner city areas, lifeline and link-up service, and broadband for schools and libraries across the country. The results in these areas are also disappointing. For example, the number of New York households without access to any phone service is going up, and the number of low income households receiving lifeline discount service has declined by more than 200,000, effectively raising their rates by more than $24 million per year. For more information, see PULP's web page on universal service.