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Hearings to Start on Phone Deal

June 13, 2005|James S. Granelli | Times Staff Writer

State regulators will open a series of hearings Tuesday to find out what Californians think about the nation's biggest telephone merger.

In 14 hearings this month in seven cities, the California Public Utilities Commission expects to hear from people who support or oppose the proposed $16-billion acquisition of long-distance carrier AT&T Corp. by SBC Communications Inc., the state's dominant local phone company.

"We have a little bit of a cloistered atmosphere here in San Francisco," PUC President Michael R. Peevey said from the agency's headquarters. "We hope to get a better appreciation and understanding of what people are thinking."

California is one of the few states that has authority to approve or reject the merger of state utility operations -- or to impose conditions. Theoretically, at least, the companies would have to continue operating independently in California should the PUC reject the deal.

The deal is part of an industrywide consolidation that also includes the pending $8.5-billion purchase of long-distance carrier MCI Inc. by Verizon Communications Inc., the nation's largest regional phone company. Both deals must be cleared by antitrust officials at the Justice Department and by the Federal Communications Commission, which typically takes state actions into consideration.

The SBC and Verizon deals would create global goliaths far outstripping U.S. competitors. What smaller rivals, consumer groups and small-business customers fear is Verizon in the East, SBC in the West and the inexorable growth of monopoly power largely unchecked by state and federal regulations. In short, they see something resembling AT&T's old Bell monopoly, which was broken up in 1984.

"We're concerned about the concentration of market power and the lack of competition between the two Bells," said Carl Grivner, chief executive of small national network owner XO Communications Inc.

Nonsense, say both SBC and Verizon. With cable and cellular phone competition and the expectation of high-speed wireless service, the Bells have enough competition to keep a lid on prices and to prod them to invest in new technologies.

"We think this is a very competitive market, and we don't think any conditions should be imposed on any one company," said Wayne Watts, SBC's associate general counsel overseeing the merger process. "If this is approved, you will see the benefits of competition."

AT&T and MCI were once the biggest rivals to SBC, Verizon and the nation's two other Bell companies. They also were the leaders of a competitive industry that largely rented Bell lines and equipment at low wholesale prices to serve customers they wooed away from the Bells.

But that business model, formed under the Telecommunications Act of 1996, fell apart last year as the Bush administration, federal regulators and federal courts eliminated rules that had fostered such competition.

Last summer, AT&T and MCI stopped marketing local and long-distance service to residential customers, focusing instead on large corporate and government customers and on their global networks, which carry about 20% of Internet traffic.

That in effect took them out of direct competition with SBC, Verizon and the other Bells, and that lack of direct competition is a key argument that SBC and Verizon make in seeking approval for the mergers.

"AT&T is not marketing to [residential] consumers. That's why there's no harm to them in the merger," Watts said.

But people like Micheline Wilcoxen won't be satisfied with letting the merger go through without strong assurances for more competition and lower prices in the high-speed Internet, or broadband, market.

"SBC bundles all its services into one package, and you have to get their phone service if you want broadband. Other options are too expensive for the working class," said Wilcoxen, interim director of the nonprofit Community Technology Organizing Consortium.

Wilcoxen's group of more than 200 nonprofit organizations uses the Internet to develop programs for underserved groups such as the disabled and residents of inner-city neighborhoods and rural areas.

Watts said consumers would benefit because SBC would offer them the products that AT&T has been creating for its corporate and government customers. And SBC will be pushing AT&T's CallVantage broadband phone service to household customers too.

"We want those customers, so we're going to provide the customer care, the products and the low prices to get them," Watts said.

As for business customers, "it doesn't look pretty," said antitrust lawyer Gary L. Reback of Palo Alto, hired by a group of Bell rivals led by XO. Most Bell rivals have relied on a number of companies to provide a competitive wholesale market, where they could lease lines and equipment at reasonable prices to serve their customers.

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