Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
On May 6, the world of telecommunications was rocked by the announcement of AT&T's $54 billion acquisition of MediaOne, the nation's fourth-largest cable television company. Along with its just-completed acquisition of TCI, the latest deal would suddenly make AT&T — which wasn't even in the cable business a year ago — the nation's largest cable operator.
Predictably, much of the reaction to the deal was of the Chicken Little variety, raising fears of a telecommunications behemoth monopolizing the information revolution. One coalition opposed to the merger ran ads actually claiming the new company would "dominate the way Americans communicate to an extent no force, institution, company or person has ever been allowed!'
"The electronic frontier is closed," the ad solemnly announced.
Nonsense. Far from being closed, the telecommunications market today is a virtual Buffalo Bill Wild West show. In fact, there may be more shootouts over telecommunications markets than ever before. AT&T's deals alone promise to lead to at least one long-awaited showdown. Now that it has acquired its own lines into American homes, AT&T may finally —after many false starts — seriously challenge local telephone-service providers.
Conversely, AT&T will not 'find itself without challengers. Remember Bell Atlantic and SBC? If their respective mergers with GTE and Ameritech go through, we could see a "Big Three" of telecommunications emerge — all with the size and resources to go head-to-head with the other. More may soon emerge. As former Clinton FCC Chairman Reed Hundt has said, these companies look like "they're beefing up like sumo wrestlers to go after each other big time."
These big players will in turn be challenged by others. Despite the hype, for instance, even the new AT&T would only fully own franchises serving some 25 percent of cable households. Of even more importance, that market is directly challenged by the growth of satellite TV, which now serves about 10 million consumers and is growing at a rate of 50 percent per year. Similarly, wireless and other providers are making their own run at the local telephone market.
No one knows how this prospective free-for-all will play out. The simple fact is, despite all the confident sound bites, no one knows what strategy in the end will be successful. AT&T knows this as well as anyone. Its 1991 acquisition of NCR — meant to put AT&T at the head of the computer pack — failed famously. Similarly, MediaOne has a spotty. history — having been acquired by USWest a few years ago, then spit back out.
One of the most likely, and most controversial, battlefields is one that didn't even exist a couple of years ago: the market for highspeed "broad band" Internet connections. These high-speed connections provide consumers with access speeds up to 100 times faster than standard telephone connections. By eliminating the current watching-paint-dry qualities of Web surfing, and even making such things as on-line video possible, this service is expected to revolutionize the Internet.
The cable industry — and AT&T, by virtue of its acquisitions — now has a clear lead in broad-band service. Cable-based broad-band services now are able to provide the fastest connections at the lowest price, and therefore have most of the market so far. This was a key concern to opponents of AT&T's merger with TCI, and is emerging as a key argument against the MediaOne deal. Further concerns have been raised by Microsoft's deal to provide Windows software for many of these connections.
Once again, however, opponents seem to be underestimating the unpredictable and dynamic nature of the telecommunications markets. Yes, AT&T will have most of the broad-band market now But the entire market is, as yet, pitifully small — less than 1 million subscribers. Competing broad-band services — telephone-based "digital subscriber line" (DSL) services and satellite access -- currently have about 200,000 of these. This could quickly grow, as new technologies allow them to improve the product. Moreover, neatly balancing Microsoft's role in AT&T's system, America Online may soon be working with the Bell companies to develop DSL and with satellite TV companies to develop their Internet services.
Nevertheless, to the critics, the race for broad band is already over. In addition to stopping mergers such as AT&T's, many are proposing massive new access regulations, forcing AT&T to share its newly acquired lines with competing Internet service providers.
Ironically, policymakers hoping to maximize competition in this area would be better advised to look in exactly the opposite direction. Current law requires telephone companies to share their lines with competitors — discouraging investment in new technologies such as DSL. Instead of imposing new restrictions, we should be getting rid of harmful, and counterproductive, regulations such as this.
Rather than being closed, the electronic — and telecommunications — frontier is just now being opened. AT&T and others recognize this and are gathering resources to explore and battle for it. Policy-makers should not stand in the way.