Monday, March 06, 2006

Ma Bell Rises from the Grave

I got some shocking news on my Blackberry last night. AT&T (formed from the combination of AT&T and SBC) decided to buy another of the Bell companies - BellSouth. After AT&T was broken up in 1984 by the Feds, nobody thought that it would ever be the same. For a long time, they were right. The seven Baby Bells (Mountain Bell, Pacific Bell, Southwestern Bell, Southern Bell, Midwestern Bell, Atlantic Bell, and NYNEX) were stuck to their own geographic area, AT&T stuck with long distance, and they never crossed paths. After the Telecommunications Act of 1996 loosened the rules, there was a rash of mergers. Qwest bought US West (Mountain Bell). SBC (Southwestern Bell) bought Pacific Bell and Ameritech (Midwestern Bell), BellSouth (Southern Bell) stood pat, and Atlantic Bell and NYNEX joined to form Verizon. Again, things simmered down. The long distance company, AT&T was getting beaten every which way by local competetors offering long distance, and the rise of the internet and VOIP only assured AT&T of a long run inability to survive. They fought this with a variety of worthless tactics, including spinning off their IP and equipment company, Bell Labs, buying TCI cable, then selling it a few years later to Comcast, buying McCaw Cellular, then selling it a few years later to Cingular. Nothing seemed to work, and they ended up being bought by one of their prodigy, SBC, who took the storied name. Now, assuming this merger is allowed, AT&T will once again be the dominant carrier in over half of the US. Analysts are also speculating that they will try and buy Qwest as well.
There are historical precedents for this. Standard Oil was broken up into over 20 companies back in 1911 and over the years they have slowly joined back together, with the main pieces now being part of ExxonMobil, BP, Chevron, and Conoco Phillips. Nevertheless, it's taken 90 years for Esso to reconfigure, and it's still not as far along as AT&T would like to be a scant 20 years after it broke up. While there are a lot more options for phone and internet service in the US now than there were back in the 80s, the new AT&T would be powerful enough to exert serious force on the marketplace. They've already decided that, given approval, they will start charging companies like Google a fee to access their lines. That right there is reason enough for me to want to nix the deal. Customers are paying their local provider of choice for the use of their phone lines and Google (or whomever) is already paying their company for the use of phone lines. What makes AT&T think that they can swoop in and collect a middleman fee for allowing data to transmit in between? They could charge higher fees to the companies that are leasing line space from them or change the agreement to companies that are connecting to AT&T pipes to move data across the AT&T network, but neither end should be directly affected by this. All it is is an old company crushed under the brutal process that is a free market trying to thrash and gasp for air.
In general, I think the free market should be allowed to decide mergers and who companies survive, however, there are certain industries that are so capital intensive (telephone and water/sewer are two of the biggest) that I think they still need government regulation. Telephone will probably change as times do, with everything moving to wireless, which lowers the barriers to entry. But for now, because of the way AT&T has tried to bully internet companies, I have to say that this is not a good deal for consumers or for other companies.

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