is calling again, with a big voice
AT&T seeks dominance with its plan to buy BellSouth, though
the field is more complex.
By James S. Granelli, Staff Writer
Los Angeles Times
Tuesday, December 26, 2006
More than 22 years after the federal government broke up the
AT&T phone monopoly, Ma Bell's family is getting back
With its $84.5-billion plan to buy BellSouth Corp., AT&T
Inc. stands poised to reassemble much of the old network
that controlled how America communicated.
AT&T would end up managing more than a third of the nation's
land lines and dominating local service in California and 21
other states. It would hold 23% of the broadband Internet
market, leave nearly 95% of the offices in major cities
without real choice in service and run the nation's largest
cellular carrier, Cingular Wireless.
That makes consumer advocates and some industry analysts
ask: How big is too big?
AT&T's political might already is unrivaled in its sphere.
In the last eight years, it has contributed more to federal
politicians and spent more on lobbying than the entire cable
and satellite TV industries combined — and more than any
communications, media or technology company, according to
the Center for Public Integrity.
"They wield a very significant amount of political influence
because of their nationwide reach and their large number of
employees," said Washington lawyer Philip L. Verveer, who
was the Justice Department's first lead trial lawyer in the
case that broke up the Ma Bell monopoly. "And because of
that, they can play regulatory authorities off each other."
To be sure, the rise of cellular and Internet technology
makes even a reconstituted AT&T less powerful than it once
was, said analyst Victor Schnee of Probe Financial
"That old Bell system as a pervasive social, economic and
political power structure was unique," he said. "You'd have
to merge AT&T, Microsoft and half a dozen other companies to
match that clout."
Only Verizon Communications Inc. comes close to matching
AT&T's political might or its reach in telecommunications
products and services. Because of the regional land line
monopolies that phone companies enjoy, the two compete only
for cellphone and some big business customers.
Likewise, cable companies with territorial franchises don't
compete against one another. But phone and cable firms are
locked in bitter fights to win customers state by state,
city by city.
"The communications field is a natural oligopoly," said
analyst Maribel Lopez at Forrester Research Inc. "If anyone
thinks there will be 15 providers of communications
services, they're sorely mistaken."
Phone and cable companies increasingly are putting together
bundles of voice, video, wireless and high-speed Internet
services. That allows them to offer new products that
integrate those services, such as being able to send phone
messages to the TV screen or allowing cellphone calls to be
answered on the home phone.
Those bundles and the different features in them should mean
more effective competition because even an oligopoly would
find it hard to coordinate activities in a way that would
violate antitrust laws, said Donald Baker, a former Justice
Department antitrust official who was involved in the Ma
In announcing the BellSouth deal in March, AT&T Chairman
Edward E. Whitacre Jr. stressed that the combination would
bolster innovation, competition and integration of
services. His company already has ways to make cellphones
and land lines work together.
"Our focus is on providing great service and innovative,
competitively priced products for consumers and businesses
throughout the Southeast, the nation and the world," he
There are two big differences between the old Ma Bell
monopoly and the new AT&T behemoth, based in San Antonio.
One is that today, AT&T must compete with a range of new
technologies — cellular, wireless broadband, Internet
telephony and broadband over power lines — and confront new
rivals, from the cable industry to a host of small phone
The other is that Ma Bell was heavily regulated, and
regulators set service rates. In the new order, control
over pricing and other key areas has been lifted, changes
some say bode ill for consumers who again face the prospect
of high prices and little choice in providers.
"AT&T still gets politicians and other people standing up
and saying this acquisition is good for competition," said
Mark Cooper, research director at the Consumer Federation of
America. "This deal is not good for consumers or for
The BellSouth purchase would give AT&T greater control over
the backbone network that connects both land line and
wireless calls, said Earl W. Comstock, president of the
Competitive Telecommunications Assn., a trade group
representing companies that lease the regional carriers'
lines to serve their own customers.
AT&T "will be able to raise prices for rivals in the
wireless and business marketplaces absent new regulatory
restraints, and those costs will be passed on to consumers,"
Comstock said. "It will result in less competition, which
means consumers will have fewer choices, higher prices,
lower quality of service and less innovation."
Jeannine Kenney, senior policy analyst at Consumers Union,
the publisher of Consumer Reports magazine, believes AT&T
would amass so much power that it could squeeze any
"Reassembling Ma Bell is still a concern," she said. "If
this merger cannot be denied, what is to stop a merger with
The Federal Communications Commission, which has postponed a
vote on the all-stock acquisition of BellSouth three times,
is expected to approve it soon with conditions that probably
will be more stringent than previously expected. That's
because the panel is split, 2 to 2, along party lines after
Republican Commissioner Robert M. McDowell disqualified
himself because of a conflict of interest. AT&T now must
work out a deal to win over the two Democrats.
One key issue yet to be resolved is whether AT&T would be
prohibited from giving companies that pay more money special
priority on its high-speed Internet lines. Ensuring equal
access to those lines is known as network neutrality.
Another issue is whether it must keep a lid on wholesale
prices phone service rivals pay to lease lines and equipment
on AT&T's backbone. A third is whether it would have to
sell some of the wireless spectrum held by BellSouth.
The Justice Department already cleared antitrust issues
without imposing conditions, a move many see as a way to
avoid judicial review. "The only way you get that rosy
picture is if you ignore all the facts and reality,"
Once the dust settles, the smallest and weakest of the seven
so-called Baby Bell local phone companies created in the
1984 dismantling of Ma Bell would emerge as the biggest. It
would be the third Baby Bell acquisition by the company
initially known as Southwestern Bell Corp. and later SBC
Last year, SBC bought the old AT&T Corp., then mainly a
long-distance carrier, and renamed itself AT&T Inc. Early
this year, Verizon bought the other major long-distance
company, MCI Inc. The deals, still under judicial review,
wiped out the two biggest competitors to the local Bell
If the BellSouth acquisition is completed, only Verizon and
Qwest Communications International Inc. would remain among
the original Baby Bells, along with AT&T. And the deal
making may not be over.
With two years still to go for the business-friendly Bush
administration and its compliant Justice Department
antitrust division, AT&T could be on the prowl to pick up
another major property. Most analysts guess it could be
Dish Network satellite TV, operated by EchoStar
Communications Corp. AT&T already sells Dish service as
part of a marketing arrangement.
Analyst Blair Levin at Stifel, Nicolaus & Co. questions
whether it's important to be such a large company. In
filings with the FCC, he said, AT&T argued that it needed
scale to compete, invest and innovate. Yet its competition
"amounts to 400 small Internet phone companies," Levin said.
"If scale really is important, they are the only ones who
are ever going to have it. Game over," he said. "And if
there are other attributes that make a successful company,
do you need scale?"