AT&T to Merge with BellSouth

America’s telecommunications revolution began when the government broke up the monopoly AT&T held over the nation’s phone system. When the Justice Department settled an anti-trust suit with the company in 1982, its local operations were split into 7 “Baby Bell” operating companies. One of them, BellSouth is now being reabsorbed for $67 million in stock. Unless, of course, the Justice Department says “no.”

That isn’t likely to happen for two reasons. The first is simply political. The Bush administration is quite happy to see British control of US ports get sold to the United Arab Emirates, so why should it intervene in a business deal among Americans with no national security ramifications? The second is a bit more complicated, mixing economics with technological change.

Phone companies now face far more competition than they did just a few years ago. Not only are cell phones supplanting land lines for many, but also, voice-over-internet-phone calls (such as Vonage) are now common. Moreover, a company called Skype offers free calls between computer users. The solution according to experts is to offer a “triple play” of VoiP, TV content and internet access.

If one accepts this argument, AT&T isn’t just in competition with Verizon, the next biggest phone company if this deal goes through. It is also in competition with companies like Time Warner, a provider of cable TV that is moving into phone and internet service (for example it has a deal with Earthlink, which provides this journal's webhosting services).

Be that as it may, the merger is setting off alarm bells among the consumer groups. Reducing the number of providers of a service rarely benefits their constituency. Also, about 10,000 jobs will be lost over the next 3 years, and that is never an easy pill to swallow politically. The question mark here is whether the unpopularity of the Bush administration will force the sale of some assets for cosmetic purposes. It won’t scupper the deal, but it could change its terms.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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