Groups Predict Disastrous Merger Effects

by Roy Mark

Consumer advocacy groups tell the FCC that the proposed telecom mergers could slow broadband, among other things.

A coalition of consumer groups says the proposed mergers between Verizon and MCI and SBC and AT&T will widen the digital divide and slow the rollout of broadband.

In an opposition filing to the Federal Communications Commission (FCC) today, the groups said the two mergers represent a "double dose of anti-competitive chutzpah that spells disaster for consumers."

"The culprit for the digital divide is not population density or spendthrift government subsidies; rather it is the lack of competition and the abuse of vertical market power," the groups wrote in their FCC filing opposing the mergers.

Last week, the Ashburn-Va.-based MCI accepted an $8.4 billion merger offer with Verizon just months after SBC announced a $16 billion takeover of AT&T . With stockholder approval for both deals, the transactions now move to Washington for antitrust review.

The filing notes that Verizon is the dominant local exchange carrier in its home territory in addition to being the No. 1 long-distance carrier and wireless service provider in most of its markets. MCI is the No. 1 or No. 2 competitive local exchange carrier in most of Verizon's service territory.

"The proposed Verizon-MCI merger pending before the FCC will have profoundly anti-competitive effects across the full range of product and geographic markets touched by the merging parties," Mark Cooper, the Consumer Federation of America's (CFA) director of research, said in a statement.

Gene Kimmelman, the Consumers Union's senior director of public policy, added, "If not rejected or dramatically altered, these mergers could set the marketplace back to a world more akin to deregulated monopoly than competition."

According to the filing, SBC and Verizon currently control 80 percent of the market in their regions.

"By buying up their largest competitors and eliminating the last vestige of competition, the market shares of these two behemoths in their regions will likely exceed 90 percent in the residential sector," the filing states.

Ed Mierzwinski, program director of the U.S. Public Interest Research Group (U.S. PIRG), noted the irony of MCI, a pioneer competitor to the Baby Bells, being swallowed up by Verizon.

"MCI played a key 'maverick' role in the industry for decades. Not only did it break open the long-distance monopoly for residential customers, but it also pioneered local competition," Mierzwinski said. "Because of MCI's competitive leadership, incumbents and competitors are now able to offer a uniform package across a large number of markets. Should it merge with Verizon, these competition-enhancing, price-lowering elements will disappear."

Two of the elements likely to disappear with a merger, the group claims, are Internet and interstate IP backbone traffic.

"Specifically, AT&T and MCI are large providers of Internet and interstate transport. As independent companies, their interest is in maximizing traffic," the filing states. "SBC and Verizon are large purchasers of Internet and interstate backbone services. As unaffiliated buyers, they make up a large portion of the market."

From a competition standpoint, the groups claim, "It is important to keep SBC and Verizon, which need the Internet and interstate backbone services as inputs, separate from AT&T and MCI, which provide this critical input."

With a merger, "SBC's and Verizon's competitors will have difficulty gaining this input and are more likely to go out of business."

This article was originally published on Monday May 9th 2005