Beyond Ma Bell II

March 07, 2006

AT&T's proposed $67 billion purchase of BellSouth triggers reasonable consumer fears about the return of the old Ma Bell phone monopoly. But in the long run, this deal could be more about the Internet - more about the even more troubling prospect of a loosely regulated near-monopoly on the digital services to your home and wireless devices. Or in other words, the demise of the Internet as we know it.

The need for scale, we're told, is the driver of consolidation in the phone business, of the merging of the Baby Bells some two decades after the courts broke up Ma Bell. So last year, SBC acquires AT&T and takes its name, and now AT&T acquires BellSouth - giving it control of about 40 percent of U.S. phone lines, leaving only one of the seven orginal Baby Bells ( Qwest) and likely sparking more mergers of phone and cable providers.

The public interest in more competition, we're told, will still come about because phone and cable companies are starting to offer competing packages of phone, TV and Internet services through their separate pipelines. But be very skeptical of that.

This deal makes AT&T the nation's leader not only in local phone lines (70.9 million) but also in wireless customers (54.1 million) and DSL or digital subscriber lines (9.9 million). Don't look for the return of those price wars on long-distance and wireless phone services of just a few years ago. And don't look for a duopoly - a market in which there's mainly one big phone company and one big cable operator - to produce much savings for consumers.

Indeed, that sort of market might allow phone and cable conglomerates to privatize the Internet, not only charging for access but also charging for content (billing consumers or Web sites for the connection). Want to patronize Amazon.com online? You might have to buy a premium phone or cable package, much like you now buy HBO. Or Amazon might have to pay AT&T (and of course pass the costs on to you).

Sound far-fetched? Top phone and cable company executives, including AT&T CEO Edward E. Whitacre Jr., have been talking for some time about ending the free ride they're giving Web content providers and competing Internet-phone service providers. And back to the AT&T purchase of BellSouth: The first step toward enabling AT&T, Comcast or other big Internet providers to do that - to privatize the Internet - is, of course, scale.

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