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SBC, AT&T say Bell breakup doesn't work

Twenty years after Ma Bell fell, consumers need nationwide providers again, merging companies tell government regulators.

The government-induced dismantling of AT&T 20 years ago, meant to spur competition between local and long-distance providers, is no longer viable, two survivors of that breakup argued Tuesday as they filed to merge.

In merger applications to the Federal Communications Commission and the Department of Justice, local phone provider SBC and AT&T, now a long-distance provider serving mostly businesses, said today's telecommunications market--and today's consumer--isn't suited to a disparate group of phone providers.

With cable operators entering the telephony market, mostly with voice over Internet Protocol (VoIP) plans via broadband Internet connections, competition is getting too hot, the application claims. AT&T and SBC say they won't be able to compete because neither can "assemble a true nationwide end-to-end broadband network." With companies increasingly bundling services to provide "triple plays" of voice, TV and Internet broadband, customers no longer want individual offerings, the applicants maintain.

"The existence of separate local and long-distance companies no longer benefits consumers," SBC and AT&T wrote to the FCC.

The two companies are seeking approval from regulators for a $16 billion deal in which SBC would acquire AT&T. The Justice Department's antitrust division would have to agree with the companies that the deal wouldn't reduce competition in the telecommunications market, and the FCC would have to weigh the more broadly defined "public interest."

The 100-plus-page merger application claims competition won't be stifled. It also paints a bleak picture for traditional phone companies in 2005. By year's end, cable television operators will be offering telephony to two-thirds of American homes, either with VoIP or traditional circuit-switched means, while cell phone operators will overtake traditional local phone operators in terms of "lines" served, the companies said in the merger application.

The days of defining local and long-distance calls may be over. While the 1984 divestiture of the Bell system and 20 years of FCC regulation have separated the telecommunications industry along local and long-distance faults, the operators argue that those lines are being erased.

"No longer are providers restricted to specific lines of business or geographic territories," the companies wrote in their application.

Telephone operators increasingly rely on Internet Protocol, the backbone of the Internet. IP-based phones are mobile, and can be used from any broadband connection in the world. That creates scenarios current telecom law doesn't cover. For instance, someone with a New York City telephone number could be in Los Angeles using his IP phone to call New York. So is that a local call? Or is it long distance because the call itself has to travel cross-country? Providers with nationwide networks are better positioned to serve this type of customer, the two companies say.

The two telcos also claim national security may be at stake if the sale doesn't go through. That might lead to a foreign company buying AT&T, which the application states "the (U.S.) government heavily depends (on) for national security and other needs."

AT&T's customers include the White House, the Department of Homeland Security, the Department of State, the Department of Defense, and numerous states, including Alaska and New York.

This is the third telecom merger now being investigated by the two federal agencies, busy times for both that may mean the investigations stretch out longer than expected.

With AT&T's long-distance rival MCI receiving bids from Qwest Communications and Verizon Communications, a fourth inquiry by federal agencies is expected soon. The agencies are also looking into Sprint's proposed purchase of Nextel Communications, and second-tier landline phone company Alltel's takeover of rural cell phone heavyweight Western Wireless.