Businesses to Face Higher Prices, Fewer Choices if SBC/AT&T and Verizon/MCI Merger Requests Approved; Former FCC Chief Economist Argues Mergers are 'Bad for Business'WASHINGTON--(BUSINESS WIRE)--June 14, 2005--The proposed SBC/AT&T and Verizon/MCI mergers would produce a dramatic loss of competitive choices, fueling major price increases and stifling innovative services for business customers, according to new economic analysis by former FCC chief economist Simon J. Wilkie.
Wilkie presented his findings on the business market impact of the proposed mergers at a press briefing today with members of the Alliance for Competition in Telecommunications (ACTel) and joined by CompTel/ALTS President Earl Comstock.
Wilkie's analysis reveals that if AT&T and MCI are removed from the telecom landscape, SBC and Verizon will dominate the business market, controlling service in well over 9 out of 10 commercial buildings in their territories. The resulting virtually complete domination by each in its own region will fuel at least a 15 percent increase in wholesale prices for local access, in turn driving up retail prices to businesses by a similar amount. The elimination of primary competitors - and the continued collusion of SBC and Verizon not to compete on one another's market turf - ensures that conditions for the business customer will worsen, not improve, if the mergers are approved.
Details from the Wilkie study expose the full negative impact of the mergers on the commercial world:
-- Market Concentration. In a post-merger environment, SBC and Verizon will control at least a combined 95 percent market share of commercial buildings in their own in-region major metropolitan markets of Chicago (SBC) and Los Angeles (SBC and Verizon).
-- Reduced Choice. Market concentration will have an immediate impact on competitive choices available to business customers. Three SBC markets provide typical examples. In Cleveland, the number of commercial buildings providing competitive choice to business customers will drop 53.6 percent. In Milwaukee and Los Angeles, businesses will see a 64 percent and 71 percent drop-off, respectively, in the number of buildings offering competitive choice.
-- Rising Prices. The evaporation of choice will in turn spike business costs. As an example, AT&T and MCI are commonly the low price bidders on special access, undercutting SBC and Verizon by at least 50 percent. The elimination of AT&T and MCI will extinguish this downward pressure on special access prices, with an inevitable surge of higher costs for business customers.
"The proposed mergers are bad for business," Wilkie said. "AT&T and MCI are the industry's largest local competitive providers to business customers - both retail and wholesale. If they are taken out, SBC and Verizon will have a stranglehold on their respective territories, with little incentive to compete against one another. If these proposed mergers are approved, we'll have effectively turned the telecom clock back more than 20 years."
Wilkie added, "In particular, MFS started business in 1985 with a simple plan - provide competitive wholesale local access to carriers enabling them to bypass the Bell bottleneck. To allow Verizon through its merger with MCI to take over MFS, and facilities that took 20 years to build, is not just bad economics but unconscionable. Yet that is exactly what will occur if this merger is consummated. The same holds true for the proposed SBC and AT&T deal, since AT&T purchased MFS's competitor, Teleport."
"Given Mr. Wilkie's credentials and experience, his opposition to the proposed mergers is significant," said Heather Gold, Senior Vice President of Government Relations at XO Communications, a member of ACTel. "On the other hand, you don't have to be a world class economist to realize that small, medium and large businesses will suffer from higher prices and fewer choices if the mergers are approved. The numbers are crystal clear."
Earl Comstock, President of Comptel/ALTS, said, "The reality is that AT&T and MCI drive down prices by offering alternative facilities and through their ability to get significant discounts on SBC and Verizon special access lines, which are the physical connections all competitors need to offer their services to businesses large and small. If AT&T and MCI are bought by the Bells, it will significantly increase the price competitors have to pay to access business customers, with the result that these customers will see less competition and pay higher prices. The Department of Justice and the FCC should reject these mergers."
According to Wilkie's analysis, the mergers' impact on business customers may be readily projected from SBC's and Verizon's current pricing and business practices, which would be exacerbated if the mergers are approved as proposed.
As an example, competitive providers rely heavily on leased facilities to serve business customers. AT&T and MCI bid most often, at prices 50 - 60 percent below the special access rates of SBC and Verizon. With AT&T and MCI eliminated from the market, leasing prices would rise to at least the next lowest bid, and likely higher. Due to the fact that there will be fewer bidders in the market, there will be a significant reduction in downward pricing pressure, resulting in a winning bid that is much closer to the Bell's posted special access rates.
Eschelon Telecom's Federal Counsel, Russ Merbeth, said, "It is a very simple matter of supply and demand. As the supply of non-ILEC wholesale services decreases, the price for those services from the remaining suppliers, chiefly the RBOCs, will certainly rise, ultimately leading to higher prices for end user business customers of companies like Eschelon and the other ACTel members."
Wilkie also found that SBC and Verizon would have every motivation to continue engaging in tacit collusion not to compete in one another's territories. Such collusion limits their head-to-head interaction and drives prices higher - by 7 to 12 percent in other industries with similar circumstances.
In Los Angeles, SBC and Verizon operate side-by-side. Competitive providers are present in over 20,000 business locations - 13,111 in SBC territory and 7369 in Verizon territory. Yet despite this opportunity to compete with one another, Verizon has achieved a meager 1.1 percent penetration in SBC territory, and SBC an equally paltry 1.5 percent penetration in Verizon territory.
About ACTelThe Alliance for Competition in Telecommunications (ACTel) represents leading providers of competitive communications services and IT solution providers that have joined together to challenge the mergers of SBC/AT&T and Verizon/MCI, which if consummated as proposed will create significant harms to the public interest - reducing choice, elevating costs to customers, and slowing innovation. Information on ACTel is available at www.allianceforcompetition.com.
Source: Company Site, Business Wire
