Dialing up the past in the telephone industry Consolidation: Baby Bell mergers threaten creation of competitive market in local phone service.

May 15, 1998

AT&T's breakup 14 years ago and the enactment of the 1996 Telecommunications Act were intended to spur competition and innovation in the nation's telephone and telecommunications service. The proposed merger of two Baby Bell companies, SBC Communications Inc. and Ameritech Corp., raises the possibility that the nation won't fully realize the full benefits of telephone deregulation.

Vigorous competition exists in certain telecommunications markets, such as long distance and wireless communications. Customers in these markets now have lower rates and better services. The same benefits of AT&T's breakup have yet to be realized in most local phone service markets because the Baby Bells have been able to maintain their monopolies.

Congress wanted the 1996 legislation to encourage more local phone competition, not the development of larger local monopolies. The Federal Communications Commission is struggling to assemble the regulations necessary to open these markets. Two years ago it issued a 700-page order, but Baby Bells have challenged it. The Supreme Court is expected to rule next year.

SBC's executives believe the local monopolies may exist for some time and want to own as many of those local lines as possible. The company has already purchased Pacific Telesis, which provided local service in much of California and all of Nevada. Its acquisition of Southern New England Telecommunications Corp. is still pending before regulators. By acquiring Ameritech, SBC will gain control over millions of local customers in the five Midwest states and control about one-third of the nation's local phone customers.

Entry into the long distance market has been relatively easy, judging by the number of carriers available to customers. Although business customers may have choices for local phone service, and competition among wireless phone companies is intense, most residential customers still have only one choice for their phone service.

In considering the SBC-Ameritech merger, the FCC needs to impose conditions that would encourage local competition in the merged company's service area. The other alternative is to for Congress to bypass the FCC and its embattled regulations and pass the necessary legislation that would allow more open markets for local phone service.

Pub Date: 5/15/98

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