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Megamerger will not mean return of Ma Bell

Unlike in 1984, when AT&T was the country's primary phone carrier, consumers today have a wide variety of choices from several competitors.

Published March 7, 2006

AT&T's plans to acquire BellSouth Corp. may seem on the surface to be the latest step in a return to the simpler days when there was one phone company for most of the United States.

But revolutionary technological and regulatory changes since the 1984 breakup of American Telephone & Telegraph ensure that "Ma Bell" will never return in its former incarnation.

For consumers, technological changes have brought more competitive choices than ever before. The definition of "telecommunications" has expanded to include wireless, high-speed Internet and, in some limited areas, even TV services. Cable companies have emerged as direct challengers to phone companies. Fierce competition has helped drive down the prices of wireless and broadband services.

But regulatory changes over the years have left Florida consumers more vulnerable to rate hikes and added fees for the traditional phone services that had formed the backbone of the old AT&T: local landline and long-distance calling.

Before 1984, AT&T was a fully regulated, government-sanctioned monopoly. Its local phone rates were regulated. Its long-distance rates were regulated. Even its profits were regulated.

"That's not true now at any level," Tallahassee consumer lawyer Mike Twomey noted.

Phone companies such as AT&T, BellSouth and Verizon Communications are free to make as much money as they can.

Long-distance rates have fallen sharply over the years because of cut-throat competition. But long-distance carriers, which include the dominant phone companies, are free to tack on whatever miscellaneous monthly charges they care to.

And thanks to 2003 legislation signed by Gov. Jeb Bush that dramatically weakened the state's regulation of local phone rates, Florida consumers will see rates jump sharply during the next few years. Once those rate increases are completed, phone companies will be allowed to increase their local rates by up to 20 percent a year without the approval of state regulators. Service quality standards will be dropped.

The legislation was drafted by the phone industry on the grounds that it would increase competition by encouraging more companies to enter Florida's market for local phone services. Since then, cable companies such as Bright House Networks and Knology have launched phone service in the Tampa Bay area.

But in 2004, federal rules were overturned that required dominant phone companies to allow competitors to lease access to their networks at regulated rates.

The result: Other players stopped trying to compete in the market for residential local phone services.

There have been some familiar names among the quitters: MCI, which was acquired in January by Verizon; and AT&T, which was acquired in November by SBC Communications. SBC adopted the AT&T name after the merger.

More than a year before the SBC takeover, AT&T had ceased marketing its residential long-distance services, although it continued to provide service to existing customers. If the AT&T-BellSouth merger is completed, AT&T plans to consolidate its residential long-distance business and that of BellSouth into one, said AT&T spokesman Michael Coe.

That will leave customers in BellSouth's service territory, which includes most of Hernando County and a small portion of Pasco County, with one fewer landline long-distance carrier to choose from. It's something that has happened to customers of Verizon since that company's takeover of MCI.

How will the deal affect Verizon?

Verizon spokesman Bob Elek said it won't change the company's business plan. That includes pursuing the launch of TV service in some markets, including parts of the bay area, and acquiring the 45 percent stake in Verizon Wireless held by British telecom carrier Vodafone Group Plc.

"We're really focusing on transitioning to a broadband communications company," Elek said.

Market analysts are divided on what else Verizon might do. Roger Conrad, editor of Utility Forecaster , a McLean, Va., investment newsletter, thinks the company might consider beefing up its wireless operations by acquiring Alltel, which is spinning off its small landline phone business.

But Roger Entner, a wireless consultant in Boston for British telecom consulting firm Ovum, said he doesn't think Verizon will attempt to make a large acquisition any time soon because he doesn't see much left that would be attractive for the company.

However, Entner thinks Verizon and other wireless carriers could benefit from AT&T's plan to replace Cingular Wireless with the AT&T name. AT&T owns 60 percent of Cingular, with the remainder held by BellSouth.

It's a decision that perplexes Entner because of the notorious reception and customer service problems that AT&T Wireless had suffered before it was acquired in 2004 by Cingular, which has enjoyed a far better reputation for service.

Now that AT&T has announced its intention to drop the valuable Cingular brand in favor of its tainted name, the heads of competing wireless carriers will "will get together and do the happy dance," Entner quipped. "For people 50 and above, AT&T still has that halo name," he said. "For those 40 and below, it has that AT&T Wireless taint. Look who's running that company - people 50 and over."

[Last modified March 7, 2006, 01:14:20]

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