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Forget corporate welfare, AT&T

Responding to C. Michael Armstrong's call to break up the Baby Bells, Verizon executive Eric Rabe says AT&T's CEO should stop looking for "government protection" and instead concentrate on competing.

    Sorry, AT&T. The Ma Bell of the 1950s is gone, and it is time to think of the future, not the past. The world of telecommunications has changed for good.

    But because AT&T has ignored the changes, the company is stuck with a business model that has failed. Now it seeks government protection in the form of "structural separation" of its biggest competitors--an idea that is dangerously out of date in today's America.

    Oft advocated by AT&T, structural separation has been rejected by expert regulators at the Federal Communications Commission, in several states, and in Congress. Still, looking squarely in the rearview mirror, AT&T argues for splitting up the former Bell companies as a way to spur competition for local telephone service. It ignores the growing competition for traditional wired local telephone service. In New York, Pennsylvania and Massachusetts, competitors have gained about 15 percent of the local phone market in a little over a year.

    But to really understand why the claim of "no competition" makes no sense, look to today's explosive telecommunications world.

    New and emerging technologies are replacing many of the calls once made on the wired local residential network. Every CNET reader who uses instant messaging knows this. Today, wireless phones, pagers, e-mail and IM make up a growing share of the local communication that previously happened only over wired telephone service.

    AT&T's claim that the former Bell companies control the "DSL market" is ludicrous. There is no DSL market; instead, there is a broadband market where cable and DSL are going head-to-head.

    Today, monopoly cable providers like AT&T enjoy a 3-to-1 advantage in the number of broadband customers they have acquired over those served by DSL.

    The irony here is that AT&T already benefits from government policies that restrict former Bell companies like Verizon from deploying broadband services across long-distance boundaries. If we truly are going to make broadband accessible to more consumers and level the playing field, we should remove the current restrictions, not impose new ones.

    So, despite AT&T's howls of pain, competition for local phone service is alive, well and growing every day. But AT&T faces a daunting problem of its own making.

    Its attempt to offer a complete package of services is in shambles. AT&T Chief Executive C. Michael Armstrong has resorted to breaking up his company. Armstrong's tirade against the former Bell companies in a recent Wall Street Journal opinion piece is a last-ditch desperation move to impose the discredited structural separation notion on companies he has lost out to in the competitive arena.

    AT&T continues to complain about the wholesale charge for leasing parts of the Verizon network, one of the ways it can compete in the local phone market. Yet companies including Verizon have lowered AT&T's cost to use these networks by billions of dollars. AT&T has not passed these savings on to consumers, but rather has spent the money on a strategic plan that has now failed. The truth is that AT&T's wholesale price complaint is just another attempt to get government to tilt the playing field in its favor.

    The bottom line is this: Structural separation is unnecessary and costly, and would create confusion for customers. In the words of Federal Communications Commission Chairman Michael Powell, "It would induce another extraordinary period of uncertainty."

    The foundation of AT&T's entire argument for structural separation--that it is needed to promote more local competition--flies in the face of fact. But while the pace of competition is growing, AT&T sits on the sidelines of the game and sends in lawyers and regulators rather than operations people and marketers.

    If AT&T is serious about wanting competition in the marketplace, we say it is time to stop the talk. AT&T should abandon the past, begin competing aggressively in the markets where there is already tough competition, and stop looking for the corporate welfare of government protection.