The US House of Representatives raised serious doubts over recently announced mega-mergers in the telecoms market yesterday.
Three recently announced mergers - SBC and AT&T, Verizon and MCI, Sprint and Nextel - may lead to less competition and higher prices, the politicians warned.
During a hearing before the House Energy and Commerce Committee, top executives from the six telecom companies involved defended the multi-billion-dollar deals, saying the mergers will ensure healthy companies that will compete with each other and invest in new technologies. The hearing was held as Congress considers rewriting the Telecommunications Act of 1996.
Some lawmakers questioned if SBC's acquisition of AT&T and Verizon's intended acquisition of MCI will leave customers with two near-monopolies that don't compete against each other in many regions. Representative Heather Wilson compared the telecom industry after the mergers to the old AT&T monopoly before the government-enforced breakup in 1984.
"We are almost at this point where we've come full circle over the last two decades," Wilson said. "We've had two decades of vigorous competition and technological innovation, spurred initially by the breakup of a very large monopoly. We're now on the cusp of seeing the emergence of a duopoly."
SBC's acquisition of AT&T, announced in January, comes at a time when the telecom industry is coming out of a recession, its CEO said Edward Whitacre. "We will provide business and residential customers alike with the most complete set of services, over a robust national and international network, using the most advanced technology," Whitacre swore.
Executives at Verizon and MCI defended their proposed merger on largely the same grounds, while executives from Sprint and Nextel noted that the merger of their wireless businesses will still leave dozens of wireless companies competing for customers.
Representative Edward Markey asked Whitacre and Verizon's CEO Ivan Seidenberg to pledge to not raise residential telecom rates after the mergers. The SBC/AT&T merger will have "no impact" on consumer prices because AT&T withdrew from the residential market in 2004, Whitacre answered.
Pressed further to pledge not to increase rates, Whitacre added: "I can't pledge that forever, but don't see anything that would impact that in the foreseeable future."
"How long is the foreseeable future?" Markey responded. "I can't make a pledge for any specific length of time. I can't give you a specific number of days, or years," Whitacre said. "I really don't foresee it."
Markey asked Seidenberg the same question, and the Verizon executive said he couldn't make the pledge, but he also noted that residential prices have seen major drops in the past 15 years. With competition from cable companies and telecom companies, prices could continue to go down, he added. "We're going to pledge to be the best competitor we can and provide the best value to customers," Seidenberg said. "The market will take care of it."
Others questioned the executives' promise of competition. But several lawmakers defended the mergers, however, as necessary for large telecom companies to grow and offer new services. The Sprint/Nextel merger will create a "broadband giant" that has no affiliation with the giant Bells, said Representative Joe Barton, the committee chairman. "We should not be wary of such a combined entity, we should welcome it," he said. The three deals will continue a "vibrant communications industry" that the US needs, Barton added.
Representative Fred Upton agreed: "These companies will be better positioned to do battle in a world where the meaningful fight will be among (cross-platform) competitors. Given the dramatic changes in the communications marketplace over the last 10 years, these mergers are not only logical, but they are integral to ensuring a vibrant and competitive communications marketplace."
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