“The Carnage of the Past Six Years”: Consumer Groups on Telecom Mergers

by on May 13, 2005

The dog-bites-man story of the past week was no doubt a petition filed at the FCC by the Consumer Federation of America, Consumers Union and US PIRG urging rejection of Verizon’s acquisition of MCI. The petition (virtually a carbon-copy of a filing by the same groups on the SBC-AT&T deal) was rather breathless in tone–warning of all kinds of consequences should the merger go through–destroyed competition, higher prices, bad breath, and so on. The chicken little claims are groundless–as discussed here and here both mergers are the natural consequence of the decline of the long-distance industry, and are a sign of a healthy, not a troubled industry. But what got my attention was an “I told you so” reference, arguing that the FCC made a mistake in OKing previous Bell mergers in 1999-2000, specifically SBC-Ameritech and the Bell Atlantic-GTE merger which formed Verizon. Specifically, they say:

“The Commission simply cannot look back on the carnage of the past six years and conclude that its decision to allow a handful of incumbents to dominate the local telecommunications market has served the public interest.”

What in heaven’s name are they talking about?

The groups mention, naturally, the telecom bankruptcies and scandals that hit the telecom industry in the early years of this decade pointing out that this destroyed “billions, if not trillions, in equity.” This is new–these groups aren’t known for their sympathy for Wall Street. Its refreshing to see they no longer regard investors as an enemy. In any case, its more likely that the financial meltdown of a few years ago was caused by too much regulation, rather than too little.

But what about the consumer? (“Consumer” IS after all in the name of two of these groups.) In the past six years, they’ve seen an incredible explosion in new services, new competitive choices, and lower prices. Here are the facts:

— in 1998 less than three million American households enjoyed high-speed broadband service. By last year, over 32 million did.

— in 1998, 69 million Americans enjoyed wireless service. Last year, 182 million did. Close to 20 percent of these consider their cellphone to be their primary phone. Almost no one did in 1998. This wireless competition has reduced the customer base of the “monopoly” wireline companies.

— Virtually no Americans could choose to use Internet telephony in 1998. This year, almost 10 million Americans have VoIP service. The leading company is a start-up that did not even exist in 1998.

— The overall cost of telephone service for American has dropped some three percent since 1998. Long-distance telephone revenue averaged 16 cents per minute in 1998, and 9 cents in 2002, and continues to plummet.

Better technology, more choices, and lower prices. This is the “carnage of the past six years.” American consumers (despite the protestations of their self-styled advocates) would do well if that kind of carnage continued for another six years.

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