Telecom Deals Create Buzz

When Congress came up with its plan to let long distance telephone companies sell local phone service, local phone companies sell long-distance service, and the market move toward open competition, legislators likely never envisioned what is happening today.

After prompting an initial spate of new entrants, the Telecommunications Act of 1996 gave way to consolidation.

RBOCs (Regional Bell Operating Companies) merged rather than competed and are now preparing to buy the long-distance carriers, culminating in SBC Communications Inc.’s proposed acquisition of AT&T Corp. last week.

That move was followed by news that Qwest Communications International Inc. and Verizon Communications Inc. are negotiating to buy MCI Inc.

Consumer advocates are crying foul and warning of rising prices and declining service, but analysts’ predictions vary considerably on how the mergers might affect business markets.

Most analysts agree that consolidation will lead to rising rates. Different segments of the business market will likely be affected differently, however.

Click here to read more about regulatory issues for RBOCs.

“This ends concerns on the part of large corporate customers about AT&T’s financial viability over the long term, but it does raise some issues in terms of pricing and things like support and service,” said Jay Pultz, an analyst at Gartner Inc., in Stamford, Conn. “We’re going to end up with a few very large players, but they’re not going to look that much alike.”

Businesses should renegotiate contracts early with their long-distance carriers to lock in low prices before regional carriers take over, and they should include termination provisions in case of poor service, analysts say.

Ultimately, large enterprises are almost certain to fare well from the proposed mergers, despite a bumpy period in the initial stages of integration. Prices will stabilize, analysts say, but the carriers will continue to court their biggest users with care. It is the lucrative corporate customers, those historically loyal to AT&T and MCI, that hold the greatest lure for regional carriers such as SBC, Verizon and Qwest.

For global enterprises, mergers between long-distance carriers and RBOCs won’t have much impact on choice because typically there were only two viable choices for those services, said Brian Moir, a Washington-based attorney who represents large corporate telecom users. However, organizations with operations within one state—a county government or university, for example—may find options reduced.

“A large customer whose footprint is one state could conceivably have a choice for local and long-distance [service] today, and that wouldn’t be the case after the merger,” Moir said.

Regulators will closely examine the proposed mergers’ impact on choice and are likely to target overlapping facilities when imposing conditions. For example, AT&T deployed network facilities in some SBC territories, and Qwest and MCI both provide Internet backbone services.

Business users are taking the latest news in stride. “Services available to me are limited by today’s technology, not by the provider,” said Jeremy Guenthner, vice president of information, technology and development at RTG Medical Inc., in Fremont, Neb. “I don’t see any negative from this if it is allowed to take its natural course.”

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