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CONTACT: Patrick Ross
January 31, 2005
(202) 289-8928
PFF Comments on SBC-AT&T Merger
Fellows Cite Competitive Communications Landscape

WASHINGTON D.C. - Senior fellows at The Progress & Freedom Foundation are in general agreement that the proposed merger between SBC Communications and AT&T is in response to a vastly competitive communications landscape. With the advent of commercial Voice over Internet Protocol (VoIP) service, rapid growth in wireless services, the entry of cable companies into the voice market, and other changes in technology, traditional local phone and long distance markets are no longer restricted to a few competitors.

"The antitrust analysis will focus on the horizontal aspects of the merger in the enterprise market," said PFF President Ray Gifford. "This once would have been a vertical merger for SBC into the long distance market, but that market is rapidly disappearing altogether. Instead, for antitrust purposes, it appears to be a simple horizontal merger in the enterprise market -- and this is a market with multiple players and even more potential players as VoIP gains a foothold." Speaking as a former regulator, Gifford says "the vertical aspects in the long distance market seem unproblematic at first glance because this is a market in decline and indeed only exists because of legacy regulatory mandates in any event."

Senior Fellow Randolph May, director of Communications Policy Studies, agrees. "It really is a very different--and much more competitive--telecommunications marketplace we have now than when [then-FCC Chairman] Reed Hundt called a Baby Bell/ATT combination 'unthinkable.'" May says "the antitrust authorities and the regulators will give it careful scrutiny, as they should." But he took issue with those using Oedipus analogies of an offspring slaying its parents. "I much prefer to listen to the simpler Humpty Dumpty tale.... the one about 'all the King's horses and all the King's men, couldn't put Humpty together again.'"

"An SBC-AT&T merger proposal should come as no surprise," says PFF senior fellow Kyle Dixon. "These combinations can bring consumers benefits, encouraging companies to provide better bundles of services more cheaply. And a huge goal of the 1996 Act under section 271 was to promote competition by removing restrictions on phone companies that existed when the government broke up Ma Bell." Dixon worked on these issues at the FCC for seven years before joining PFF last year.

Gifford also notes that "one peculiar benefit of the AT&T/SBC merger might be a firm with better incentives to work out the seemingly intractable problems of intercarrier compensation reform." The FCC is expected to take up intercarrier compensation at its February 10th meeting.

The Progress & Freedom Foundation recently released a landmark study on the competitive communications landscape. "The Myths and Realities of Universal Service: Revisiting the Justification for the Current Subsidy Structure" details the rapid expansion of new services and providers in communications.

Gifford, May and Dixon have also blogged on the proposed SBC-AT&T merger on The Progress & Freedom Foundation blog. Gifford's posts can be found here, here, here and here, May's entry is here, and Dixon 's post is here. The fellows are available for further comment.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation