ATT: The UNREGULATED Monopoly
It was only 22 years ago, that the old AT&T was split into seven Baby Bells in wake of the anti-trust suit of the Department of Justicet. Now one of the Baby Bells, SBC Communications, wants to become the new Ma Bell by merging 4 of them. Pretty soon we’ll have 2 instead of 7; eventually there may be one - the new Ma Bell. But with a huge difference: the old ATT was a regulated monopoly, the new ATT will be an UNREGULATED monopoly.
The new ATT agreed to pay $67 billion to buy BellSouth. This will make ATT a huge colossus, with $120 billion in sales, about 317,000 workers worldwide and 71 million local phone customers in 22 states. The new AT&T will provide services to virtually every country and territory in the world. It would not be merely an American colossus but a global colossus.
We hear that permission to merge is almost a sure thing. How can that be? Twenty two years ago, the old ATT was nowhere near as potent as the merged ATT would be. Evidently, the anti-trust rules have changed. The changes has been so great that very few mergers are stopped.
The merger protagonists are all over the media telling us that there is a new business environment and that there will be plenty of competition. Where? Yes, there are all kinds of new telecom services on the market. But why should the consumer - that's us - be forced to go through one or even 2 powerful corporations to get these services?
I know this is a lost cause. Bush administration officials parrot the Big Business line:
If it's good for Big Business it's good for America.
Huge mergers like this one are NOT good for America. Not only do these mergers hurt us as consumers, they hurt each and every one of us as citizens. A huge corporation with $120 billion in sales, and soon to become even more monstrously big - maybe doubled - is too powerful. The more power ATT gathers the less power the rest of us citizens have. Such a huge corporation can buy many lobbyists to make laws to suit it. It can buy legislators. It can buy all the political power it needs to have its way.
And even if ATT is the epitome of honesty, if such a corporation gets to be close to bankruptcy, the word would get out that "ATT is too big to fail." We - that means us citizens - must bail it out.
Allowing this merger to go through will demonstrate how much we the people have yielded our political power to Big Business in 22 years. Not only will we have a new monopoly, but an UNREGULATED monopoly.
Posted by Paul Siegel at March 7, 2006 3:27 PM
The problem with your assertion that SBC will become an unregulated monopoly is that it is no longer a monopoly at all. With most areas allowing competition in providing local dial tone access combined with companies like Vonage who are now providing VoIP services, the days of the Ma Bells are becomming numbered.
As an example, Dish Networks and DirecTV were considering merging as well but were blocked because this would have provided a true monopoly. There is a difference in blocking large mergers and blocking monopolistic mergers.
For a change I agree with Rhiehold. NPR did a report this morning basically saying the same thing. E.g. There are now more cell phones than land lines. Too much price pressure from the other technologies to worry on this issue.
The real worry, will IPs be allowed to prioritize traffic? The law now says “all data is equal”, but what happens if a provider can say “my VoiP traffic gets first priority”? If your carrier doesn’t use them maybe your phone won’t work?
First of all, the original breakup of AT&T was not such a good thing. Yes, it endgendered competition, but at what cost? Higher local phone rates vs lower long distance. I remember when the case was finally decided, my local phone service(I was living in Florida at the time) went up by 10 dollars per month. This was when ten dollars meant something to me. True, it got better over time, but it took time to get things straightened out.
The major problem was, and still is, a lack of service to rural areas, such as where I live now in eastern Kentucky. Our local phone service is an absolute monopoly. There is no competition because none of the majors are allowed into the area served by the co-op. The only broadband service is theirs, the only cable tv is theirs, the only local phone service is theirs.
I would love to have the original AT&T back. Or, I would love to have competition for my communication dollars. Oh, I almost forgot. The local wireless service is controlled by, guess who? And they use a protocol that is proprietary and does not recognize the other towers in the area.
Great post! None of us should be surprised. This is, after all, the best government money can buy:
This data shows AT&T and SBC coming in as the top two telecom donors for election year 2000:
AT&T spent $7,400,000, SBC came in a close second at $7,208,000.
AT&T’s total lobbying expenditures for 2000 were $7,480,000: http://www.opensecrets.org/lobbyists/client.asp?id=1631&year=2000
The top overall donor list for the 2006 midterms puts AT&T at #3 with a paltry $1,278,811 so far. Bell South comes in at #33 or $614,853 so far.
During the 2004 election cycle SBC donated $2,431,472 with 65% going to the Republicans. Bell South came in at $1,345,889 with 60% going to the Republicans.
Average cost to gain a House seat:
A Senate seat will cost just a tad over $7,000,000!
When I think about it maybe phone and DSL rates should increase. They’ve certainly not kept pace with gasoline, heating fuel and electricity. And just remember this is an “ownership society”. If you don’t own the ship you damn sure better have your own life jacket.
Paul this might have been a marginally persuasive argument 10 or so years ago, but the telecoms industry has changed dratically in recent years.
First, you argue that AT&T providing global service is somehow self-evidently evil. Why? If you’re a subscriber, wouldn’t it be nice to use the same network when you travel abroad or to make international calls?
Land line usage has declined dramatically in recent years, to the point where most people I know no longer bother with having them. Are you telling me there isn’t sufficient competition among cellular providers—Verizon, Sprint, T-Mobile, Virgin, Cingular (AT&T). Not to mention voip, and firms like Google and Ebay joining the fray to provide services like Skype and the vast amount of communication done by email and IM.
These mergers are following a classic economic pattern. Firms are merging as the products and services they offer have become commoditized or matured—i.e., there is less profit to be made by regional players like BellSouth. Are you going to tell me that if I don’t want to use AT&T services I, and most others, have no other options? Just the opposite: we have more communication options today than ever and they cover the spectrum of price points.
You fail to offer even a single compelling economic or moral rationale for opposing the merger other than AT&T will get bigger and that it used to be big 25 years ago.
Having read a number of your posts in the past, you seem to be reflexively anti-business, usually in the guise of protecting some elusive little guy. To paraphrase Joe Lieberman, you can’t be pro-job growth and anti-business.
Business and Government regulation moves in cycles. If the new Ma Bell becomes the unregulated monopoly feared, then there will be public outcry for Government regulation. Then the Gov’t will regulate until it becomes a deterrent to the economy, then another break-up, etc.
KansasDem,where are the figures for the contributions to the Dems by the unions who want laws passed that force businesses to give and pay for benifits they used to bargain for,benifits that raise the cost of the products and make it impossible for the businesses to make a profit without raising prices and harder for us to buy them.The Dems have been bought by Unions for decades and have legislated many Mom and Pop businesses out of business with laws and taxes that that make it too expensive to operate.The Dems have taken aim at Wal-Mart (not unionized)recently to force them to provide and pay for Health Coverage for all it’s employees.Drug companies and Health providers also give to Dems to force all businesses to provide Health coverage and prescription coverage and the costs have risen while the Dems publicly condemn high profits they pass more laws that benifit them.The Dems have hurt Americans with legislation while saying they are on our side.I was in a communications union for years and supported Dems until I saw the damage they were doing to small businesses.The Dems have put small businesses out of business with there tax laws while saying they are for small business and against big business while passing laws that force companies to merge to protect themselves creating big businesses.Unions contribute to Dems without asking their members who they want to support and tell them to vote only Democrat.In short,Unions and other ‘special interest groups ‘are bribeing the Dems (legally and illegally)for their “evil”purposes and condemn the Repubs for the same concerning “Big Business”.The real ‘evil’ is all the groups that bribe officials (Dem and Repub) to benifit themselves even if it hurts the majority leaving the majority unrepresented by the people who elected them.The Dems and Repubs who take these bribes (legal or illegal)should be replaced with Officials who take only individual donations and are bound to represets all Americans!All lobbying groups are self serving no matter who they bribe!!!!!!
Get the government off the communications industries back and it will move much faster. Innovations and entrepreneurship will create faster and less expensive communication for all.
The only credible information I’ve read regarding unions over the last fifteen years has all been in agreement that their once considerable power has been greatly usurped by the connections between large multinational businesses and Washington insiders. In fact, union activity, were it as omnipotent as you claim, would be contributing to considerable gains for small businesses throughout the country. And we all know that’s not the case. “Mom and pop” businesses are suffering now and for the last ten years or so NOT because of unions, but because of the strength and political muscle of nonunionized global behemoths exactly like Wal-Mart, whom you somehow seem to support while at the same time supporting mom and pops. I hate to tell ya, but you can’t have it both ways, my friend.
To lament the role of unions in creating our current economic woes is tantamount to crediting the first American railroad companies for our current immigration problems.
On other matters, I too heard the report on NPR regarding this AT&T merger and for once I’m not too concerned about it.
Great post, Paul! I agree that the new ATT will be a monopoly; it will also add unnecessary risk to the American taxpayers in the too-big-to-fail mode and will cost us all more in the near- and long-term.
Yes, the competitive environment has changed but not necessarily in the ways described by the other posts. The new ATT will have its hand in virtually every component of telecommunications, in essence, forcing us to pay them regardless of which provider we choose. In this case, provider refers to local, long distance and cable. Don’t forget that to get Vonage or other VoIP providers, Vonage will have to charge us additional fees because THEY have to pay access fees to ATT Broadband. You can aruge that ATT Broadband is not connected with the new ATT, but there are indications (if you dig deep enough) that so-called legacy fees are being paid for continued use of the ATT name. You can also go with Cingular but they are now part of ATT. You can get BellSouth DSL for your internet access but they’ll be directly owned by ATT. There seems to be a pattern emerging here….
Many will say that the new ATT will be able offer lower costs because of economies of scale achieved by merging similar jobs and functions, etc. That may be the case, but then again it may not be. But it’s likely that costs will increase in the short term, due to severance packages, the usual unforeseen merger costs, accounting changes, tax write-offs, etc. All passed on to the consumer. As for the near- to long-term, ATT will have the ability to dictate prices to the market instead of the other way around. THIS, folks, is a MONOPOLY!
Furthermore, its massive amounts of available money provides them with the ability to buy legislation, lobbyists, lawmakers…and future price increases. As with any telecommunications company, public utility or other similar industry, lower costs will be promised for a while, then the tide will be begin to turn. They will apply for rate hikes using the argument that their costs have gone up and will state that ‘regrettably we must pass these costs on to our customers.’ And without the rate increases, they ‘may not be able to offer the same level of service our customers have come to expect.’ So when service levels begin to suffer, subscribers will agree to the rates hikes for the sake of using the services upon which they’ve become so dependent. It plays out this way all the time with electric utilities, natural gas providers, airlines et al.
The irony is that service levels with these providers have practically remained the same, or even worsened in some cases (e.g. rolling blackouts—Colorado had them two weeks ago). Yet we’re never really told where the money from the rate hikes actually goes. But somehow every time I see a vehicle from the phone company, electric utility, natural gas provider, or an airline, it’s a brand new one! But can you ever get a customer service rep on the phone quickly and easily?
Meanwhile all the top executives will get multi-million dollar bonuses for meeting their short-term profit goals, while the subscribers get bent over the proverbial stump…without the courtesy of a reach-around. By the way, the proposed merger between Dish Network and DirecTV was blocked because the two companies didn’t have enough money to buy the approval. But that’s just my opinion.
SunDevel: Thank you for your exposition.
Boojum: I am pro growth and pro business. I am against Big Business that is taking over our government. A merger that produces such a huge corporation REDUCES competition. Would you consider going into business against ATT?
Google has a larger market cap ($104.71b) than T ($103.44b).
I lost enough money on telecoms to know that there is serious competition in this marketplace. Most of these companies are having to a make moves like this just to survive. Please allow all of that stuff they taught us in Econ to work its magic; I don’t want to go back to renting my telephone ever again (I had the avocado green trim-line with the lighted dial).
macsonix,The unions are still powerful but I said all special interests are hurting America,because they are paying for results and getting them at our expense.All public officials should refuse special interest money and represent all Americans.Businesses provide jobs for people,unions want higher wages which results in higher prices and on and on.Special Interest Groups care for no one but themselves.I was wrong to support them and I no longer do.The Unions are stronger than you think,no matter what you read.I was in a trade union and I am aware there is a war between Big Business and Unions and both want to control congress for less than honest reasons.Neither side shuold be allowed.
So how come SBC offered DSL at $14.95 after merging with PacBell, Ameritech and Southern New England and now once they bought AT&T they lowered the DSL price to @12.99? That doesn’t sound like much of a monopoly. Does it? You have cable companies offering Voice, Video and Data services (maybe wireless if they decide to acquire Nextel/Sprint or T Mobile), are they not considered a monopoly? They actually have more freedoms to change their pricing, without having to go through some state board to get approval. Go Ma Bell, with the purchase of AT&T and now Bellsouth it’s only a matter of time before Verizon is next!
I still doubt the efficacy of unions in this country but agree that any powerful interest with pull in Washington is usually operating to the detriment of the majority of Americans in general. However, I feel business interests do now hold and have held, since the end of WWII, greater sway with our representatives than any other special interest.
Those companies can offer DSL at those lower prices because the products are known as Loss Leaders. Meaning they offer the products at or below cost for a short period, with the incentive that someone sign up for an extended period of time (beyond the intro period). The companies offer these products to entice the consumer to enroll, subscribe, etc. to this AND other products. Qwest, for example, offers bundling packages that combine wireless, internet, local and long distance services. Signing up for all of the products makes it harder (or at least more inconvenient) for the consumer to switch to another service provider for one or more of the currently subscribed services. This is what companies count on, even if service levels are marginal. But under a monopoly or near-monopoly, certain varieties of bundling becomes illegal (a’ la Microsoft).
Bank-owned credit card issuers have been bundling for about 10 years or so. That’s why many stand-alone credit card issuers have been bought by banks. A customer with one or more financial relationships at that institution generates greater revenues than a one-product customer. Multiple-relationship customers are also inherently less risky to the company and its bottom line. I worked in the credit and banking industry for 15 years, and I’ve proven this scenario several times over, both financially and statistically.
Whether in telecommunications, banking or manufacturing, multiple relationship management works and should be legal…as long as it’s in a competitive environment where barriers to entry are relatively low. It’s at this point in which lower prices can be offered to the consumers. Which returns me to one of my original points—that a monopoly like the new ATT can dictate prices to the market instead of the other way around. When a company dictates prices and consumers have multiple products bundled, they become a captive audience—i.e., they’re forced to do business with that company and (often) only that company.
Also, don’t forget that a competitive economic environment is a key driver of innovation and/or continuous improvement. The American auto industry of the 1970s is a great case study in what happens to quality and innovation when there is little to no competition. Until the quality of Japanese vehicles increased at the same time that gas shortages occurred, there was no reason for the US auto industry to improve. Then their asses were practically handed to them, the federal government had to guarantee loans to Chrysler because they were too big to fail. And American Motors Corp (AMC) became insolvent. The same scenario could easily apply to the new ATT.
I rest my case.
If you are interested in the reality of these telecom companies (now company) please visit either of these web sites:
I recently found out something which makes these companies look like Enron. In the 90s the telecom companies were given $200 billion from american taxpayers. In exchange, they were supposed to rewire america with high-speed fiber networks. However, they kept the money and didn’t keep their end of the bargain.
Now America, the country that invented the internet, it falling way behind in broadband quality and connectivity. In other developed countries their internet connection speed is much higher, for example in Korea they have 1000mbps connections (in America, you’re lucky if you have 8 mbps). The economy also suffered as technology like for HD video lagged behind. The AT&T companies continue to fail american consumers with over-priced, lousy service and dishonest business practices. I hope they’ll be held accountable, but considering the current climate I won’t get my hopes up.
I agree with Paul’s assessment of the new unregulated AT&T. Has anyone tried using those “other” phone companies? Has anyone experienced the hassle with going through the “big boys” in order to use phone service? I know of those who have and the results are not good. The unregulated monopoly is wrong. Simply wrong. Just because there is this “smoke screen” of competition, that’s all it is: a “smoke screen” to make it look like competition exists. Indeed, competition is being eliminated.
PeoplePC offers a less expensive “accelerated” Internet access, but whose lines do they use to deliver it to us? I have tried the “accelerated” acces and it does not compare to BellSouth. So, why is it that only BellSouth can bring such speed of access into the home over phone lines? HUH?
Paul is absolutely correct in his assessment.
I lived in Florida when Florida Telephone existed, a great public utility. They eventually combined with some other companies to become United Telephone. They were later bought by Sprint, who then began to charge the rate payers for buying the company. When I moved to Illinois, Sprint had bought out Centel, and I got stuck with them again. They were later bought out by Ameritech, and eventually became SBC which stands for Southern Bell Corporation. Baby Bell becomes Ma Bell again.
Incidentally, when Ameritech took over, they did not need any of the employees from Centel. Just before the takeover, these employees went out to all the junction boxes and removed all the tags from the lines, so the new people from Ameritech could not tell what line when where. Every time someone in my building added or deleted phone service, everyones service was disrupted.
baby bell is all grown up. To say att/sbc is not a monopoly is absurd. Last year I got a great promotion -dsl 19.99 from sbc. If I dont renew a 1 year contract at 17.99 it goes to 29.99. I am not eligible for the 12.99 promotion. What sbc is trying to do is not provide lower service prices especially to existing customers. What they are doing is-
1. pricing below market prices to kill competion
which includes aol the cable companies and satelite. this also keeps new competition from even thinking about challenging in this arena.
2.After sbc annihilates the competion in phone service and dsl it will gradually raise rates to the maximum people will be willing to pay for the services.
3. they will either buy yahoo or create their own browser/ search engine and begin to reap the rewards of internet advertising
3. this will create a massive war chest to take on the media companies for tv service and internet content.
4. they will in essence own all portions of the internet , the lines , the service, the content
5. they will go after wireless at the same time they are competing with media companies(they are already the largest)
6. economics 101 vertical intergration horizontal intergation. Whats there to debate they are a monopoly.
7. so you say what about wireless broadband?
read this and remember just because theres an handful of companies now that was the same in the phone biz 10 years ago. read this http://www.slate.com/id/2128632/
8. The good news is sbc will be in a great position to battle China Telecom cant say the same for 90% of the other businesses.
and finally I cancelled my old sbc and signed up on a second line for 12.99
I bought AT&T DSL when it was still SBC. The kicker to DSL is that you have to maintain a certain, higher, level of local phone service to keep the DSL or you break the contract and have to pay the termination fee. Meanwhile they start hiking up the local phone costs. But, you cannot switch local companies because you would void the DSL contract. Then when the contract expires and they start charging $34.99 a month for DSL you are forced to either re-up with them for another promotion, drop DSL all together, or choose another DSL carrier…this is where the fun begins…if you switch your DSL service you CANNOT change your local service because AT&T owns the fiberoptic lines for the DSL. If you drop their local service you can no longer access DSL service through anyone! So, I now have a one year contract with another DSL provider but I have to keep AT&T as my local service to maintain the DSL. I cannot change to broadband or something because I would have to pay the contract fee for terminating my new DSL before the 12 months is up. Now AT&T can start upping my local phone cost and I have to just take it or else I have to pay to get out of the new DSL company’s contract, find totally different internet service, and new local phone service. Once AT&T has your DSL (throght those great promo prices) they then control your local service. That is the monopoly. They may offer great initial DSL prices but they can now play with the charges for your local service and there is nothing to be done unless you are willing to get broadband and pay the termination fees of your contract.
I have waited 5 months to get service. Still no install date. I requested 5 months ago to tap a fiber circuit less than a mile from my place of business. I have countersigned contract from ATT for the install, and have been waiting month after month for the service with no install date in site. I now know why the government broke them up the first time as a monopoly and wish to God they would do it again. The NEW ATT sucks worse than the old ones that pre dated it. What a truly crappy company that has a monopoly on my ability to get access. I am starting a campaign to my congressmen and senators to break them up again.