Sunday, February 20, 2005

Jennifer Szymaszek / Associated Press New York-based Verizon Communications' likely acquisition of MCI Corp. is the latest merger consolidating the telecommunications industry.

Telecom mergers may not hike bills

Despite consolidations, analysts say Internet and cable options will likely keep phone rates at bay.

By Bruce Meyerson / Associated Press

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NEW YORK -- After three big mergers within the past two months in the rapidly consolidating telephone industry, consumer advocates are nervous that phone bills might rise.

But the rule that less competition leads to higher prices isn't so clear-cut in a telecom landscape altered by people gabbing on cell phones at home and plugging their old landline phones into Internet modems, all while they watch cable TV.

"I doubt any of these deals will have an adverse affect on residential customers," said Robert C. Atkinson, director of policy research at the Columbia Institute for Tele-Information at Columbia University. "With cable companies and wireless companies, there's plenty of options coming. There will be plenty of opportunities to succeed or fail."

The latest merger -- Verizon Communications Inc.'s announcement last Sunday that it would buy MCI Inc. for $6.7 billion in cash and stock -- was the third big telecom merger since December.

With AT&T Corp. being acquired by SBC Communications Inc. in a $16 billion deal announced two weeks ago, two companies that ruled the long-distance market until recently are now due to disappear. Sprint Corp. said two months ago it would pay $35 billion for Nextel Communications Inc.

Once the deals close, a process that may not be completed until mid-2006, an industry once dominated by 10 names will be reduced to the Big Four -- Verizon, SBC, BellSouth Corp. and Sprint Nextel.

A key catalyst for all three deals was a court ruling nearly a year ago and subsequent decisions by the Federal Communications Commission that severely weakened the business prospects of AT&T, MCI and Sprint, prompting those companies to seek strength through mergers.

But while many might worry about the loss of competitors, the major phone companies might find it difficult to raise prices because many people and businesses already are using money-saving alternatives.

Cell phones have replaced the traditional copper-wire phone for millions of Americans, while Internet-based phone service from cable TV companies such as Comcast Corp. and Time Warner Inc. -- not to mention pure Internet telephony providers such as Vonage Holdings Corp. and 8x8 Inc. -- is gaining rapid acceptance.

For SBC and Verizon, the consumer business is a minor attraction in their purchases. Instead, they are counting on the corporate customers and national network operations that AT&T and Ashburn, Va.-based MCI bring.

AT&T and MCI also bring a big base of residential customers to whom SBC and Verizon would like to market cable TV services they plan to begin providing over their phone lines starting later this year. Both SBC and Verizon are investing billions to upgrade their networks to deliver video and interactive services.

Verizon declined to say what will become of the MCI brand. It is a storied name due in part to its role as the first major rival to AT&T's national long-distance monopoly, and then as a legal opponent in the case which led U.S. Judge Harold Greene to order the breakup of the Bell System in 1984.

MCI was acquired in 1998 by Bernard Ebbers' WorldCom Inc., which after a financial scandal and a trip through bankruptcy, re-emerged with the MCI name in 2003.