CEI Comments on Verizon and MCI Merger

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Technological “convergence” – when providers compete with different technologies to supply the same service – is revolutionizing the telecommunications industry. Cable companies are now in the business of providing local phone service. Wireless companies compete for long distance. Satellite competes against cable for video entertainment, and phone companies are rapidly developing a video offering that will compete against both satellite and cable.

The Commission must consider the reality of convergence. New markets are in the process of being created out of technology previously relegated to a single use. The convergence of voice, video and data (the “triple play”) onto a single technological platform is the result of consumer demand for a complete end-to-end communications experience. It therefore makes sense that the network that provides this experience also be owned and operated end-to-end.

Yet, the acquisitions of AT&T and MCI by SBC and Verizon have stoked fears of market domination. Even though technology is transforming the industry, at least one advocacy group believes these mergers would set the marketplace back to a world of “deregulated monopoly. ”3 It is this rhetoric of the past that, if adopted by the

Commission, will prevent consumers from receiving the benefits of competing networks of the future.

Of course, there was a monopoly in communications – one created and regulated by government – for seventy-one years. The dominant economic thought of the early twentieth century was that telephone service is a “natural monopoly.” Yet there was never anything natural about AT&T providing phone service to almost every household in the nation.

The DOJ breakup of AT&T resulted in a fracturing of a network into two distinct types of service providers – local exchange carriers (the Baby Bells) and interexchange carriers (long distance). Unfortunately, AT&T’s divestiture, like its original monopolization, did not encourage competing networks. A stratified network divided into local and long distance service ignored the efficiencies of vertically integrated networks. But new technology has come to the rescue. Competitive cable and wireless networks have emerged from outside the regulated landline sector. And these competitors are largely free to manage themselves as fully integrated networks.