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Critics sound off in Bell merger hearings

Opponents leveled a string of potentially damaging criticisms against the two pending Baby Bell mergers at a hearing in front of the FCC.

WASHINGTON--Opponents leveled a string of potentially damaging criticisms against two pending Baby Bell mergers today at a hearing in front of the Federal Communications Commission.

While little of the evidence was genuinely new, the testimony brought by public interest advocates and potential rivals appeared to give commissioners pause as they considered the mergers between SBC Communications and Ameritech, and Bell Atlantic and GTE.

Officials from SBC and Bell Atlantic said their new joint companies would be able to mount full-scale efforts to institute local and long distance service for businesses and residences around the country. This, they said, would boost local competition in the new markets they entered, as well as encourage rivals to challenge them more seriously in their home terrain.

But critics attacked the assertion that the Bells need to merge in order to carry out this business strategy.

"These companies today can compete outside their home markets, but they chose not to," said Richard Devlin, executive vice president of Sprint. "The mergers of large regional monopolies can only take us farther away from the goal of local competition."

This argument has proven persuasive to some regulators. Commissioner Susan Ness today reiterated her doubt that SBC, with a market capitalization of some $94 billion, needed to merge to survive and expand.

But public advocates argued today that service has declined in areas where some of the companies have already merged, a point that also appeared to interest the commissioners.

"We have to ask several questions," said FCC chairman William Kennard in his opening statement. "Have promises to regulators been kept? Are consumers in those areas [where previous mergers have been approved] better off?"

According to Regina Costa, research director for California-based The Utility Reform Network, a ratepayer advocacy organization, the answer to both of those questions was no.

California telephone service provider Pacific Bell has been the subject of increased consumer complaints, has failed to answer regulators concerns about its ISDN service, and has consistently tried to raise the price of necessary services since being acquired by SBC, she said.

"What we have seen since SBC took over is one after another wave of proposals designed to get more money out of Californians," Costa said.

SBC president for strategic markets Stephen Carter said Costa was mischaracterizing PacBell's record, however. The company had improved its service record since being acquired, and had even won awards for its services levels from Sprint, hardly a friendly source, he noted.

Competition in return for merger approval?
The day's arguments pointed out a path that commissioners could take in order to approve the mergers, yet still pursue their goals of improving industry competition.

Carter, along with officials from Bell Atlantic, stressed that their merger strategy would allow them to enter new local markets, and then link disparate local zones with long distance services. This would allow them to compete for out-of-region local customers much more effectively than alternative local providers have up to this point.

But in order for this to work, the companies need to win regulatory approval to offer long distance service in their home region--something that no Baby Bell has yet been able to do.

"There is no doubt that without the ability [to offer long distance service], our national strategy is somewhat stranded," Carter said.

Several commissioners, including chairman Kennard, picked up on this point, exploring further how critical the long distance effort--which is contingent on the Bells opening their local markets to competition by rivals--was to the companies' post-merger plans. The line of questioning left open the possibility that the commissioners could impose the condition that the companies open their local markets to competition, thus gaining long distance approval under the 1996 Telecommunications Act, before completing their mergers.

FCC staffers confirmed that commissioners would have this power, but stopped short of confirming they were thinking about imposing this condition.

After the hearing, Carter said that the long distance regulatory approval was a critical piece of SBC's post-merger "national-local" strategy, but said he did not think it should be tied to the merger approval itself.

"It would be convenient for us if they came together," Carter said. But as far as the merger process itself, "I don't see any link whatsoever," he said.