WASHINGTON-Sen. Mike DeWine (R-Ohio), chairman of the Judiciary antitrust subcommittee, last week expressed strong reservations about SBC Communications Inc. Chairman Edward Whitacre Jr.’s pledge that his company’s $62 billion proposed merger with Ameritech Corp. will benefit competition and consumers.
“This proposed merger has generated a strong reaction, largely because phone company mergers were not the goal of Congress when it passed the telecommunications act over two years ago,” said DeWine at the opening of last week’s hearing.
Some observers see the lack of local wireline competition nearly two-and-a-half years since the law was enacted as a big opportunity for wireless carriers to tap the $100 billion local market through innovative pricing, like AT&T Wireless Services Inc.’s digital one-rate plan.
Another Senate hearing is scheduled for June 16.
Whitacre said the merger, which would require divesting some cellular licenses held by SBC and Ameritech in Chicago, St. Louis and other Midwest markets, defended the firm’s compliance with the 1996 telecom law. Whitacre added the merger is necessary to bring local competition to major markets and for the United States to be competitive in the global telecommunications arena.
DeWine ask why SBC needed to merge with Ameritech to pursue its national local strategy.
“No one has tried this before on such a large scale,” said Whitacre. “It is expensive … This is a big project,” he added. “We’re not large enough, as off-the-wall as it sounds, to pull this off [alone].”
Whitacre said the national local strategy would enable SBC to be the first company to provide residential and business customers nationwide a one-stop-shop mix of local landline, long-distance, wireless, high-speed data and Internet services.
While Sen. Orrin Hatch (R-Utah), chairman of the Judiciary Committee, seemed taken with the point about the United States being able to battle Bell Canada, British Telecommunications plc, France Telecom, Deutsch Telekom, Nippon Telegraph and Telephone Corp. and others on the international front, other lawmakers and a leading consumer activist focused on the potential impact for local customers and future mergers.
“The real question remains, though, how do we guarantee that SBC and other merging companies live up to their promises?” Sen. Herb Kohl, ranking minority member of the subcommittee, asked rhetorically. “The burden of proof falls on the merging companies, and it should be a heavy one because thus far pledges of a future `competitive Nirvana’ made during the debate on the telecom act have been just that-mere pledges.”
Likewise, Sen. Richard Durbin (D-Ill.), pondered out loud, “Are Ma Bell’s kids coming home?”
SBC previously merged with Pacific Telesis Group, the Baby Bell that serves California and Nevada. The Justice Department, under antitrust chief Joel Klein, did not impose conditions on that merger or another between Bell Atlantic Corp. and Nynex Corp.
Sen. Robert Torricelli (D-N.J.) questioned Whitacre aggressively, asking the SBC chief at what point the number of Baby Bells had to diminish before mergers become anticompetitive, “Four, three, two?”
Then Torricelli asked Whitacre whether a combined AT&T Corp.-Bell Atlantic Corp. would be good for competition. Whitacre said yes and repeated the answer when asked the same about a hypothetical AT&T-WorldCom Inc. alliance.
Scott Cleland, of Legg Mason Walker Inc., argued that capital goes where it is welcome and that is why Baby Bells are merging local operations and expanding overseas.
Prominent telecom lawmakers like Sen. John McCain (R-Ariz.) and Rep. Billy Tauzin (R-La.) agreed, saying the Bell companies’ difficulty in entering the long-distance market is the reason they have chosen to join local operations.
Whitacre accused AT&T, the nation’s top long-distance and mobile-phone service provider, of feigning efforts to break into the local phone business.
Bell entry into long distance depends on opening up local markets to competition. If AT&T cannot enter the local market, for whatever reason, Baby Bells effectively are denied access to the $80 billion long-distance market.
Gene Kimmelman, codirector of Consumer Union’s Washington office, called on the administration to step up antitrust enforcement and Congress to rewrite the 1996 telecom act.
Thus far, lawmakers, even those with concerns about telecom consolidation outpacing competition, have shied away from reopening the telecom act.
