Three recently announced telecommunications mergers received mixed revenues in a U.S. House of Representatives committee hearing Wednesday, with some lawmakers questioning whether the deals will lead to less competition and higher prices.
During a hearing before the House Energy and Commerce Committee, top executives from the six telecom companies involved defended the multibillion-dollar deals announced since mid-December, saying the mergers will ensure healthy companies that will compete with each other and invest in new technologies. The hearing was held as Congress considers rewriting the Telecommunications Act of 1996.
Some lawmakers questioned if SBC Communications Inc.’s acquisition of AT&T Corp. and Verizon Communications Inc.’s intended acquisition of MCI Inc. will leave U.S. telecom customers with two near-monopolies that don’t compete against each other in many regions. Representative Heather Wilson, a New Mexico Republican, compared the telecom industry after the mergers to the old AT&T monopoly before the government-enforced breakup in 1984.
“We are almost at this point where we’ve come full circle over the last two decades,” Wilson said. “We’ve had two decades of vigorous competition and technological innovation … spurred initially by the breakup of a very large monopoly. We’re now on the cusp of seeing the emergence of a duopoly.”
SBC Communications’ acquisition of AT&T, announced in January, comes at a time when the telecom industry is coming out of a recession, or “trying to get up off the mat,” said Edward Whitacre Jr., chairman and chief executive officer of SBC. “We will provide business and residential customers alike with the most complete set of services, over a robust national and international network, using the most advanced technology,” Whitacre said.
Executives at Verizon and MCI defended their proposed merger on largely the same grounds, while executives from Sprint Corp. and Nextel Communications Inc. noted that the merger of their wireless businesses will still leave dozens of wireless companies competing for customers. The Verizon deal, announced in February, still faces a competing bid for MCI from Qwest Communications International Inc.
Ivan Seidenberg, Verizon’s chairman and chief executive officer, and Michael Capellas, MCI’s chief executive officer, didn’t specifically address the competing Qwest bid during their testimony, but both said the Verizon deal made the best sense for the two companies.
MCI’s worldwide IP (Internet Protocol) network is best matched with Verizon’s local telephone and wireless businesses because local and long distance business plans “are on their way to obsolescence,” Seidenberg said. “This transaction is about the future. Verizon and MCI will be a national, full-service company with the technology and financial strength to deliver the broadband future and create economic growth for America.” Whitacre and Seidenberg dismissed lawmakers’ concerns about a lack of competition by saying that their companies already compete with each other in the wireless space and that they will compete after the merger in the enterprise and residential markets.
The two companies, often called regional Bells, also face competition from cable operators offering VOIP (voice over Internet Protocol) and will face increased competition from wireless services, including broadband wireless offerings coming in the next two years, Whitacre said. With more customers cutting off landline service and switching to wireless service, SBC has been losing tens of thousands of landline connections each week, he said.
“I don’t think there’s any question there will be more competition, not less,” Whitacre added. Representative Edward Markey, a Massachusetts Democrat, asked Whitacre and Seidenberg to pledge to not raise residential telecom rates after the mergers.
The SBC/AT&T merger will have “no impact” on consumer prices because AT&T withdrew from the residential market in 2004, Whitacre answered.
Pressed further to pledge not to increase rates, Whitacre added: “I can’t pledge that forever, but don’t see anything that would impact that in the foreseeable future.”
“How long is the foreseeable future?” Markey responded.
“I can’t make a pledge for any specific length of time. I can’t give you a specific number of days, or years,” Whitacre said. “I really don’t foresee it.”
Markey asked Seidenberg the same question, and the Verizon executive said he couldn’t make the pledge, but he also noted that residential prices have seen major drops in the past 15 years. With competition from cable companies and telecom companies, prices could continue to go down, he added.
“We’re going to pledge to be the best competitor we can and provide the best value to customers,” Seidenberg said. “The market will take care of it.” Others questioned the executives’ promise of competition. Lawmakers in rural and low-income districts urged SBC and Verizon to bring broadband and other advanced services to their areas, and Mark Cooper, director of research for the Consumer Federation of America, said consolidation and “ill-conceived regulatory policies” have crushed hopes for expanding competition. The regional Bells have declined to compete in each others’ regions for residential customers, and the mergers will leave residential customers with only a choice between the Bells and their local cable companies, Cooper said.
“The recent wave of proposed mergers in the telecommunications industry … mark the ultimate demise of the era in which consumers could expect more and more choices and lower prices,” Cooper said.
Several lawmakers, both Republican and Democrat, defended the mergers, however, as necessary for large telecom companies to grow and offer new services. The Sprint/Nextel merger will create a “broadband giant” that has no affiliation with the giant Bells, said Representative Joe Barton, a Texas Republican and the committee chairman. “We should not be wary of such a combined entity; we should welcome it,” he said.
The three deals will continue a “vibrant communications industry” that the U.S. needs, Barton added. Representative Fred Upton, a Michigan Republican, agreed. “These companies will be better positioned — combined rather than separate — to do battle in a world where the meaningful fight will be amongst (cross-platform) competitors,” he said. “Given the dramatic changes in the communications marketplace over the last 10 years, these mergers are not only logical, but they are integral to ensuring a vibrant and … competitive communications marketplace.”