Telco heads can't rule out post-merger price hikes

CEOs of Verizon, SBC tell congressional panel that rate increases aren't planned after mega-mergers, but can't be ruled out.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read
WASHINGTON--Top executives from SBC Communications and Verizon Communications on Wednesday would not rule out eventual price hikes following a series of proposed telecom mergers.

The comments came during a session conducted by the House Energy and Commerce Committee to examine the impact of SBC Communications' proposed purchase of AT&T and Verizon Communications' bid to buy MCI.

When Congressman Edward J. Markey (D-Mass.), asked Verizon CEO Ivan Seidenberg and SBC Communications CEO Edward Whitacre Jr. to promise not to raise phone rates, both executives declined.

"I can't pledge that forever," Whitacre said. "But for the foreseeable future I don't see that happening."

Seidenberg agreed, and took a swing at the cable industry, the Bells' archrivals that have launched their own local phone services.

"To answer that question we would need to have the cable companies here too," Seidenberg told the panel.

Whitacre and Seidenberg were joined by an A-list of telecom power brokers, including AT&T CEO David Dorman, MCI CEO Michael Capellas, Sprint CEO Gary Forsee and Timothy Donahue, president and CEO of Nextel Communications. All testified in today's session.

The executives insisted that if they're allowed to merge they could use their improved financial health to speed up the deployment of new advanced services based on the Internet protocol. They also argued that the combined companies would allow them to increase investment in deploying new fiber infrastructure. These new technologies would eventually help reduce costs and lower prices for customers, they said.

"We don't see the MCI merger affecting the consumer market at all," Seidenberg said. "But what it will do is allow us to take some more inefficiencies out of our business to improve our financial strength."

Consumer groups dispute the benefit of the mergers, saying a few large companies should not be allowed to dominate the phone industry.

"There's a bit of a shell game going on here," Mark Cooper, research director for the Consumer Federation of America said in an interview after testifying before the committee in a separate panel. "AT&T and MCI may have stopped marketing their local consumer telephone business, but they are still the primary competition in many regions."

The mergers began about six months ago in the wireless market. Top-tier cell phone operators AT&T Wireless and Cingular Wireless merged. Then in December, local, long-distance and cell phone giant Sprint agreed to merge with wireless operator Nextel in a deal worth $31 billion.

Marriage in the air
In January, local phone giant SBC announced a deal to buy AT&T for $16 billion. Two weeks later, Verizon Communications announced it would pay $6.75 billion for MCI, the nation's second-largest long-distance telephone carrier.

If these acquisitions get regulatory approval, they will create an entirely new type of phone company. The traditional local and long-distance phone company sold only local phone services and very little else. The new telecom provider will be a national company that packages voice, video, cell phones and broadband--wireless and wireline.

The days of the pure long-distance phone carrier are vanishing. Increased competition from new technologies such as cell phones, the emergence of local phone companies on the long-distance scene and a glut of bandwidth capacity on long-haul data networks has driven prices so low that both AT&T and MCI found it difficult to make a profit.

While most industry experts agree that consolidation in the telecommunications market is necessary, critics caution that regulators must be careful it does not stifle competition. Some worry that the series of huge phone company mergers could drive up prices for consumers.

Lawmakers during Wednesday's session acknowledged that the consolidation was necessary, but many expressed concerns.

The companies tried to ally these fears. Verizon CEO Ivan Seidenberg assured lawmakers that his company's acquisition of MCI will increase competition. He added that the deal "does not alter the dynamics that are reshaping the consumer market."