Competition at issue in telecom mergers [ASND quote]
sjmercury.com
BY STEPHEN BUEL
Mercury News Staff Writer
Posted at 8:49 p.m. PDT Tuesday, July 28, 1998
In just 11 weeks, four of the largest communications companies
serving the Bay Area have announced huge merger deals
predicated upon seemingly unrelated goals.
SBC Communications Inc. wanted to enlarge its turf. AT&T
Corp. craved its own line into people's homes.
Tele-Communications Inc. needed a partner with deep pockets.
And Tuesday, GTE Corp. confirmed that it would merge with
Bell Atlantic Corp., the nation's largest local phone company, to
secure new markets for its services.
Participants portrayed all of the mergers as destined to bring
competition to consumers. But concern for one particular type of
consumer -- businesses that buy huge volumes of phone service
-- clearly unites most of the players, just as it was the driving
force behind the global joint venture AT&T and British
Telecommunications PLC proposed Sunday. This is the
competition that's booming today, and these are the customers
phone companies are most afraid to lose.
The question for residential customers, and for the regulators who
must decide whether to permit these deals to go through, is
whether competition for these large customers will yield
competition at the residential level -- a prime goal of the 1996
Telecommunications Act. Opinions vary greatly, but there's a
growing feeling among industry observers that it could.
''We're a more competitive telecommunications market than we
ever have been and we're going to get even more competitive,''
said analyst Ford Cavallari of Renaissance Worldwide Inc., a
technology consulting firm. ''It's getting more competitive every
day, and giants are aligning with giants. How can the two exist in
the same universe? Well, they are.''
Even Federal Communications Commission Chairman William E.
Kennard suggests that some mergers could further competition.
''I hope the parties will demonstrate how this merger advances
the pro-competitive thrust of the Telecommunications Act,''
Kennard said Tuesday in response to the proposed merger
between GTE and Bell Atlantic. While hardly a thumbs down, it
was less positive than his statement that last month's proposed
acquisition of TCI by the AT&T Corp. might be ''eminently
thinkable.''
Of the recent mergers involving Bay Area communications
providers -- Bell Atlantic's proposed purchase of GTE, AT&T's
offer to buy TCI, and SBC's bid to acquire Ameritech Corp., the
dominant local phone company in the Midwest -- the GTE deal
has the weakest inherent connection to residential competition.
''It will give the merged company critical mass as we go outside
of our existing footprint and continue to expand the customers
that we serve,'' GTE chairman and chief executive Chuck Lee
vowed Tuesday. ''We have no question that it's pro-competitive
and it's pro-consumer.''
But Lee's subsequent comments made clear that the competition
he was referring to was competition for high-volume corporate
customers. GTE spokeswoman Nancy Bavec acknowledged that
her company and Bell Atlantic have no specific plans to offer
services to new residential consumers.
In promising to deliver more competition but not making the
pledge concrete, GTE's approach differs markedly from the one
adopted by SBC last May when it announced its bid to acquire
Ameritech. The parent corporation of Pacific Bell, SBC promised
to enter 30 additional U.S. markets outside the two companies'
combined 13-state service area.
Royce Caldwell, president of SBC Operations, said the
acquisition of Ameritech would help his company achieve three
goals. It would reduce the number of cities SBC needed to enter
to compete nationally, bring economies of scale to the company's
operations and purchasing, and free up the managerial talent
necessary to compete directly with another local Bell company.
Despite its pledge to pursue residential consumers, though, SBC
is every bit as concerned as GTE with high-volume business
customers. Caldwell said his company needs a national reach to
be able to hold on to the 1 percent of its customers that generate
30 percent of its revenues.
''It's our obligation to serve everybody,'' Caldwell said. ''And it's
our intent to serve everybody with robust, feature-rich
technology. . . . And to do that, We can't let our competitors take
away Wells Fargo and the big oil companies in Texas and those
sorts of companies. . . . If we're limited in what we can do for
them, then people will package things together for them and
eventually we'll lose them.''
Caldwell said that in addition to conventional phone services,
these customers are increasingly demanding Internet access and
high-speed data services. Just Monday, Kennard of the FCC told
an audience of state utility regulators that while the market for
traditional voice services is growing by about 5 percent a year,
the data business is growing 300 percent a year.
It's the need to cope with that demand that's driving the telecom
buying frenzy, including WorldCom Inc.'s proposal last year to
buy MCI Communications Corp.
''At some point in the future, in the very near future, the amount
of data traffic is going to surpass the amount of voice traffic in
these networks,'' said Kurt Bauer, a vice president with Ascend
Communications Inc. ''Everybody's getting geared up for that.''
Analyst Scott Cleland of the Legg Mason Precursor Group,
which advises institutional investors, said residential consumers
will benefit from this wave of industry consolidation because
weak companies serve their customers poorly.
''In the long term, shareholder and consumer interests are
inextricably linked,'' Cleland said.
Consumer activists see the wave of mergers in a different light.
For example, Gene Kimmelman of the Consumers Union, who
denounced the proposed GTE-Bell Atlantic pact as ''another nail
in the coffin of local telephone competition,'' has noted that
still-unfulfilled promises of competition also accompanied prior
mergers such as SBC's acquisition of Pacific Bell.
Cavallari argued, however, that telecommunications giants of the
type envisioned by the latest deals will have to enter new
residential markets to sustain the rapid growth their strategies
depend upon.
''In SBC-Ameritech, you're seeing the formation of an entity that
will need to go into these new markets -- indeed, it will be forced
to go into these new markets,'' he said.
|
