The same stumbling block that stymies Ameritech Corp.’s efforts to offer its customers long-distance phone service may now threaten its proposed merger with SBC Communications Corp., analysts said.
Ameritech and other regional Bells maintain they’ve opened their local phone service monopolies to competitors, meeting the requirement enacted by Congress 30 months ago that would lift the rule preventing local monopolies from offering long-distance service. But the Federal Communication Commission time and again has disagreed and kept the ban in place.
Now FCC Chairman William Kennard says the proposed SBC-Ameritech marriage won’t receive his blessing unless the companies can show it will promote competitive choice for customers of the two giants.
“One of the things SBC and Ameritech have told us is that `we’re prepared to demonstrate we’ll bring more competition outside of our region.’ But I haven’t heard them say they’re going to do things to bring more competition in their regions,” Kennard said at a Bloomberg News forum late last week.
He said the two companies have a “very heavy burden to show that this merger is pro-competitive.”
In May, when Ameritech and SBC executives announced the stock swap deal valued at roughly $70 billion, they said that their bulked-up company with a home territory serving one-third of the nation would quickly start offering phone service in New York, Boston, Atlanta and 27 other cities outside its home territory.
The argument made by Ameritech executives is that once Ameritech-SBC goes after customers of other Bells, those companies, such as Bell Atlantic and Bell South will respond by offering phone service in Chicago, Houston and other SBC-Ameritech home markets, thus initiating competition for the consumer market.
That’s similar to the argument also made by Ameritech that it should be allowed to offer long-distance service because once it goes after AT&T’s customers, AT&T will have no choice but to offer local service to Ameritech customers–again, resulting in competition to the benefit of consumers.
Kennard’s remarks signal he doesn’t buy this reasoning and that Ameritech and SBC must do more to open their markets to competitors.
“The regional Bells have all played this game of turning the wheel one degree at a time on local competition,” said Andy Belt of Renaissance Worldwide, a Boston-based consultancy. “They take one step to open their markets and then look to see if that’s enough to satisfy the regulators so they can get into long distance. What Kennard is saying is that he wants them to take three steps, and maybe he’ll bless their merger.”
Ameritech has perhaps done the most to match its own rhetoric and cooperate with competitors, said Jeffrey Kagan, an Atlanta-based consultant. SBC, on the other hand, is widely perceived to have done the least, preferring to fight in court to protect its monopoly.
“Offering the carrot of long distance hasn’t been enough to pry open local phone markets to competition,” Kagan said. “Clearly this new wave of mergers gives the FCC another lever to try to get the job done, and I’m sure Kennard plans to use it. Ameritech is already in pretty good shape on competition, but SBC has much further to go.”
Mark Hellmann, a Chicago-based attorney who works with competitive phone companies, said that his clients find “dealing with SBC is like trying to kick a dead whale down a beach.”
While government regulators and lawmakers have expressed surprise that the main consequence of the 1996 law has been megamergers of local phone companies, industry veterans say it’s only natural. The bust-up of Ma Bell a decade and a half ago was done for political reasons, not economic ones, so moving to a market-driven world was bound to bring consolidation, they say.
