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The urge to merge rather than compete has engulfed virtually all facets of telecommunications, leaving consumers paying inflated prices from entrenching monopolies that are inadequately disciplined by either market forces or regulation. The latest, a proposed combination of real monopolies, Ameritech and SBC, would be a rotten deal for consumers and should be stopped in it’s tracks.
The problem for consumers continues to be lack of choice for local phone service. In fact, local phone competition is virtually non-existent. Instead, of fostering competition, this new proposal would extend the current local phone monopoly from the Rio Grande to the Great Lakes, plus California. Rather than going after each other or going after other communications companies, two local telephone monopolies are joining their monopolies together in markets that were supposed to be broken open to competition. Consolidation has replaced the broad explosion of competition that Congress promised in the 1996 Telecommunications Act.
Claims by these local monopolies that the deal gives them the freedom to cross over into other markets and compete looks suspicious. SBC made the same type of claim last year when it merged with the California/Nevada phone monopoly Pacific Telisis. And so did Bell Atlantic when it gobbled up New England’s local phone monopoly NYNEX.
Did these mergers lead to more competition? Absolutely not! It appears that the promise to compete always comes later, after local monopolies grow so enormous that no one has the resources to compete against them.
Because most consumers have and will only have one choice for local telephone service, the merger activity is risky business for those looking for economical local phone service. In this new telephone marketplace, it appears that a large majority of the will be worse off: they are unlikely to receive large enough long distance price reductions to offset substantial increases in local rates.
These phone companies who want this merger have a track record of trying to jack up rates. Press reports show that local phone companies have raised residential phone bills by up to 20 percent, and more price hikes are on the horizon. In Florida, only an eleventh hour blitz in the legislature stood in the way of an effort by local telephone companies to increase phone bills up to 100 percent. In every region of the country, charges for connecting consumers to competing telephone companies have been inflated far beyond market rates, causing a steady creep in phone bills. Above market pricing for these connections currently account for more than $8 billion in bogus charges.
Consumers are also hit with extra monthly charges for services they do not need or use. Basic residential service rates are paying for overhead, marketing, long distance and enhanced service costs, inflating rates about $2 a month. These same residential customers often pay for equipment deployed primarily to businesses, like excess fiber optic lines and switching capacity, costing about $4 a month. Meanwhile, the Bell companies and GTE earned at least 70 percent more than similarly situated companies last year.
We need to blast open local phone monopolies, not let them get larger and more powerful. Unfortunately, our nation’s antitrust officials have been asleep at the wheel, allowing monopolies to expand. Hopefully this new SBC/Ameritech deal will wake them up. It’s time to end this merger mania.
Ultimately, Congress must be responsible and accountable to the public for promising more competition than is being delivered. Consumers are still waiting to see the competition and lower prices Congress promised two years ago when it overhauled the telecommunications law. It is time to adjust the law to reflect competition’s snail’s pace in consumer markets. Lawmakers should show some leadership and crack the whip on weak antirust and regulatory response to monopolistic behavior.
Gene Kimmelman is the Co-Director of the Washington, D.C. office of Consumers Union, the publisher of Consumer Reports magazine.
