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November 03, 2006

at&t Blames Commercial Entities for FCC Delay

The Federal Communications Commission has again delayed voting on at&t’s proposed acquisition of BellSouth.  at&t is quoted in the NY Times  as saying:


“While we regret that the merger has been delayed by the self-interest of commercial entities and their litany of unreasonable demands, we look forward to the F.C.C.’s approval so that we can get about the business of providing the overwhelming benefits the merger represents to consumers, to the economy and to the public interest.”


Self-interest?  Commercial entities? To misquote Captain Renault in the movie Casablanca, I’m shocked, shocked to find that there are commercial entities here.


After all, we can see from the second half of the sentence that at&t itself has nothing but the public interest at heart.  It hurts them terribly to have to extend the territory in which they have a landline monopoly and to consolidate ownership of Cingular which they now share with BellSouth.


at&t’s press release announcing the merger does seem to hint that they, too, have some of the “self-interest of a commercial entity”:


  • Substantial financial benefits for stockholders of both companies; an expected net present value of $18 billion in synergies resulting from a more than $2 billion annual run rate in synergies(nb. Corporate-speak for layoffs)  expected in 2008, growing to $3 billion in 2010
  • “Expect merger to be accretive to AT&T adjusted earnings per share in 2008, double-digit adjusted EPS growth in each of next three years (earnings adjusted for merger integration costs and amortization of intangibles) and significant growth in free cash flow after dividends in 2007 and 2008”

Of course, there’s nothing wrong with trying to enhance stockholder value; I’ve tried to do the same thing as a CEO.  It’s the hypocrisy that’s annoying.  Much more important is that this acquisition is significantly anti-competitive and is NOT in the public interest, far from it.  The FCC does well to take their time (happening because of a partisan split on the commission) and should impose strict conditions if it approves the deal at all.


Here are a few of the reasons why the acquisition is not in the public interest:

·        at&t chairman Ed Whitacre has been clear that he considers Internet access and backbone “my pipes” that he has every right to double-bill for (as is traditionally done in telephony) and on which he can selectively bill for equal access. Internet access in the US is largely through cable, telephone lines, and, increasingly, mobile.  This merger creates several duopolies: Verizon-at&t for the bulk of landlines and backbone, telco and cable already existing for wired access, Cingular and Verizon wireless for mobile access.  Duopolies are almost as stable as monopolies.  Makes no sense to let him consolidate the power to impose a regime a competitive market wouldn’t tolerate.

·        “public spirited” at&t has used its power as the monopoly supplier of phone is PXes in Iraq to gouge American troops.

·        BellSouth tried to use its legislative clout in Louisiana to force the shutdown of municipal WiFi in New Orleans despite the fact that this service was and is key to recover and filling a gap which BellSouth’s still-damaged network didn’t.

·        Both BellSouth and at&t have refused to provide voicemail as an emergency service to customers for whom landline service is failed and have misrepresented the costs of doing that in comments to the FCC.

·        Prior acquisitions of MCI by Verizon and AT&T by the former SBC have reduced competition for business services to the point where the natural price decline in this commodity business has slowed.


If the FCC is going to approve the acquisition as it is almost certain they will, here are a few suggested conditions:


·        Divestiture of Cingular;

·        Prohibition on the combined company bidding for any wireless frequencies;

·        Prohibition on double-billing for Internet access;

·        Requirement to provide free voicemail during emergencies to subscribers whose landlines are out of service;

·        Prohibition on blocking 3d party calling cards on PX phones.


Good wireless access to the Internet is our best hope for a free market solution to the cableco-telco monopoly.  The greatest danger in this merger is that it both strengthens one company’s hold on wireless AND creates and even larger behemoth to bid on new frequencies as they become available.  The acquisition would probably be abandoned if the price were divesting Cingular but that’s not my problem and would be an indication of the motive behind it.


I’m not for general Net Neutrality legislation at this point because of the difficulty of definition and the danger it would be used anti-competitively.  However, if a monopoly is going to be enhanced, it also needs to be constrained.  These provisions DO NOT have to apply to non-dominant players.


The prohibition on gauging at PX phones isn’t there because of its effect on the overall economy; it’s there because it’s right.

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