Barton, Other Congressmen Support Telecom Megamergers

Some lawmakers on Capitol Hill expressed support Wednesday for the giant mergers developing in the U.S. telecommunications industry.

The broad public interest is well served by the mergers, said U.S. Rep. Rick Boucher, D-Va., during a hearing before the House Committee on Energy and Commerce.

Rep. Joe Barton, R-Texas, chairman of the committee, also signaled support for the planned mergers combining Sprint Corp. and Nextel Communications Inc.; AT&T Corp. and SBC Communications Inc.; and MCI Inc. and Verizon Communications Inc. The chief executives from the six companies testified during the hearing.

The combination of Sprint and Nextel will create a broadband giant in the wireless industry that has no affiliation with the Bells, said Barton in a prepared statement, referring to the regional phone companies: BellSouth Corp., Qwest Communications International Inc., SBC and Verizon.

Barton also said the once unthinkable merger of AT&T and SBC is now very realistic.

AT&T is a different company than it was 10 years ago. AT&T and SBC have complementary assets The same logic applies to the Verizon-MCI deal, he said.

Not all of Congress has been so supportive of the giant mergers.

More and more we appear to be moving toward a world in which consumers will face one dominant local telephone company, which bundles its local service with long-distance, high-speed Internet and wireless service, said U.S. senators Mike DeWine, R-Ohio, and Herb Kohl, D-Wis., in a joint statement released Feb. 14, the day Verizon announced plans to acquire MCI. This bundling and the ongoing consolidation continue to raise troubling questions about competition and the availability of consumer choice.

The Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights also is planning a hearing to discuss the mergers, but the subcommittee led by its chairman, DeWine, has not set a date.

For years, the telecom sector has been battered by bankruptcies, scandals, and cutthroat prices while alternative forms of communication like e-mail and wireless services have replaced traditional long-distance phone traffic. SBC Chairman and CEO Ed Whitacre said in testimony Wednesday there are more wireless subscribers than traditional phone lines in the United States.

For years, Whitacre and his peers like Verizon Chief Executive Ivan Seidenberg stayed away from consolidation as competitors like MCI faced accounting scandals and restructured under record bankruptcies or simply liquidated during a period in which an estimated $2 trillion in equity evaporated.

Much has changed even over the last year. Until the summer, AT&T and SBC were bitter rivals in the consumer phone market as the two giants assaulted each others bread-and-butter businesses. One incessant dispute before lawmakers and regulators: AT&Ts right to access SBCs local network at government-mandated rates.

But AT&T, a company whose roots date back to the invention of the telephone in 1875, ultimately lost the battle. It stopped marketing traditional phone service to consumers after a federal appeals court struck down wholesale network rules that laid the foundation for local residential phone competition and had been the subject of court appeals for eight years.

That is not the only setback AT&T has faced over the years. The Bedminster, N.J., company, which once owned a cable division and a wireless unit, is a shell of its former self. AT&T Wireless is now part of Cingular Wireless, the No. 1 wireless carrier, which SBC and BellSouth jointly own. AT&T Chairman and CEO Dave Dorman said revenue at AT&T declined from $49.6 billion in 1999 to $30.5 billion in 2004.

MCI, the subject of a bidding war between Qwest and Verizon, has faced similar revenue declines. Annual revenue at the Ashburn, Va., company dropped 15 percent to $20.7 billion, largely driven by precipitous drops in its consumer unit. MCI said it expected revenue in 2005 to drop by 10 percent to 14 percent.

The company also has scaled back marketing to consumers.

The chief executives involved in the planned megamergers point to the recent strategic decisions by AT&T and MCI as support that the combinations of once-fierce rivals will not diminish competition in the residential market. Still, AT&T and MCI continue to offer service to millions of homes, and concerns were raised at the hearing Wednesday over whether consumers would be stuck with higher bills once the big mergers are complete, according to media reports. Asked by a congressman whether SBC and Verizon would pledge not to raise rates, Verizons chief Seidenberg declined but said there would be ample competition even after industry consolidation, The Associated Press reported.

Said Fred Upton, chairman of the House Subcommittee on Telecommunications and the Internet: Given the dramatic changes in the communications marketplace over the last 10 years, these mergers are not only logical, but they are integral to ensuring a vibrant and intermodally competitive communications marketplace.

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