Another Telecom Shoe Drops: Verizon Buys MCI

by on February 14, 2005

The timing was eerily reminiscent of the SBC-AT&T merger announcement two weeks ago. A weekend of speculation and negotiation, followed by an early morning announcement of the merger. This time, the happy couple was Verizon and MCI, with MCI being purchased for $6.7 billion. Its still early to gauge the reaction, but so far the news has been met with a loud yawn. The stock markets barely moved, and the political reaction has so far been muted. That’s for good reason–although the merger looks to be a good one for consumers, as well as the firms involved, it really just confirms changes long underway in telecom, rather than setting any radically new direction.

Most obviously, the merger closes the books on the long-distance service as an independent industry. Of the traditional big three in long-distance, two are now merged, and the third–Sprint–is now more of a wireless carrier. The artificial division between long-distance telephony and other telecom created by Judge Greene in 1984 is now history.

But–despite claims to the contrary we will no doubt hear–the deal does not mean “consolidation” of the telecom industry. Yes, SBC and Verizon will be much larger. And the deal gives both a better foothold in the large business markets, which had been weak points for them. But, the big picture in telecom is still one of more competition, not less. Never mind the share of wired lines each “controls.” That means little. Wireless telephony has evolved into a real competitor to SBC’s and Verizon’s wired offerings, and the market is fiercely competitive. Even more disruptive: Internet telephony, which is bringing in a raft of new competitors, from giant cable firms, to start-ups like Vonage, to P2P-based services like Skype.

The acquisitions of AT&T, and now MCI, while significant, have little to do with today’s revolution in telecom. That revolution–led by wireless and Internet technologies, is one of challeges, not consolidation.

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