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A telecom line we've already heard

June 08, 2008|DAVID LAZARUS | CONSUMER CONFIDENTIAL

Every so often history seems to repeat itself right before your eyes. That happened last week as Los Angeles City Atty. Rocky Delgadillo sued Time Warner Cable Inc., alleging that it failed to deliver on promises of better service.

Those vows were made a couple of years ago when Time Warner joined with Comcast Corp. to buy bankrupt Adelphia Communications Corp. for $12.7 billion.

Time Warner and Comcast then swapped franchises so they wouldn't have to cooperate or compete with one another. Instead, each claimed control of different regions, enjoying the market power that comes with being a monopoly, or close to it.

So let's recap: Multibillion-dollar telecom merger, supposedly good for consumers, not so much actually.

And just as L.A. was taking Time Warner to court, what happened? A multibillion-dollar telecom merger was announced and the companies involved pledged that this would be good for consumers.

Deja vu all over again.

In the latest deal, Verizon Wireless said it would shell out $28.1 billion to acquire rival Alltel Corp. and become the largest cellphone provider in the country, vaulting past current leader AT&T Inc.

Once the deal goes through, Verizon and AT&T will account for roughly 150 million of the 255 million cellphone subscribers nationwide, or nearly 60% of the market.

Verizon said its acquisition of Alltel would be good for customers.

That remains to be seen, said Chris Murray, senior counsel for Consumers Union. What's sure, he said, is that the merger will be good for Verizon.

"The less competition you face, the more market power you enjoy," Murray said.

The more market power you enjoy, the less incentive you have to make customers happy. It's pretty simple.

Verizon Wireless is a joint venture of Verizon Communications Inc. and Britain's Vodafone Group. Here's what Lowell McAdam, chief executive of Verizon Wireless, had to say after the Alltel takeover was announced: "This move will create an enhanced platform of network coverage, spectrum and customer care to better serve the growing needs of both Alltel and Verizon Wireless customers for reliable basic and advanced broadband wireless services."

It's nice that "customer care" will now enjoy an

"enhanced platform," whatever that means. But the glaring omission from McAdam's statement is how the merger will affect prices.

John Walls, a spokesman for CTIA, a wireless industry association, said people have nothing to fear.

"What's happening in the industry is nothing but good for consumers," he declared. "We'll continue to see innovation, and products and services that are the best in the world."

What about lower prices?

"Oh, that too."

When Time Warner acquired Adelphia's cable assets, the company acknowledged that its larger economies of scale would likely result in lower programming costs -- that is, Time Warner would be paying less for the various channels on its cable system.

Those lower costs for Time Warner never translated into lower costs for customers.

In his civil suit, Delgadillo claims that the company "engaged in fraudulent acts and business practices resulting in consumers paying more for cable television services than they were led to believe."

He also said customers experienced excessive service outages, spent hours on the phone waiting for service reps and were billed for services they might have canceled.

"Time Warner Cable . . . has broken multiple laws and harmed countless Los Angeles consumers," Delgadillo said in a statement. "Time Warner must be held accountable for illegally deceiving and ripping off its subscribers."

A Time Warner spokesman, Alex Dudley, told me the company was confused by Delgadillo's allegations.

"We're proud of the service that we're providing to the L.A. area," he said. "We've worked really hard to turn things around, and we believe that we have."

Dudley added that cable service in Southern California is "dramatically, drastically, substantially better" since Time Warner grew as a result of the acquisition from 360,000 customers to about 2 million.

If that were the case, it's hard to imagine that L.A. would be taking the company to court. Similarly, it's hard to see how Verizon's "enhanced platform" will result in lower prices or improved service for customers.

If anything, the Verizon deal now places pressure on other companies to tie the knot.

Rumors are swirling that Deutsche Telekom, owner of T-Mobile, may make a play for ailing Sprint Nextel Corp., merging the country's third- and fourth-biggest cellphone companies.

Meanwhile, there's talk that MetroPCS Communications Inc. will link up with rival Leap Wireless International Inc., combining the two companies' prepaid cellphone services.

Don't be surprised if AT&T or Verizon then swoops in and buys MetroLeap (or whatever it's called).

"We haven't seen many industries where consolidation has been good for consumers," said Murray at Consumers Union. "Generally, consolidation leads to higher prices and lower-quality service."

It's happened before. It'll happen again.

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Consumer Confidential runs Wednesdays and Sundays. Send your tips or feedback to david.lazarus@latimes.com.

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