Antitrust: Time to break apart the phone companies -- again?

In the global meltdown of the economy, corporate earnings are the bellwether of survival. The old adage that the strong get stronger and the weak.... they just collapse. But some corporations now control significant market share that some believe borders on antitrust violations in the U.S.
Written by Doug Hanchard, Contributor

In the global meltdown of the economy, corporate earnings are the bellwether of survival. The old adage that the strong get stronger and the weak....  they just collapse. But some corporations now control significant market share that some believe borders on antitrust violations in the U.S. In Australia, Canada and Japan, corporate consolidation has risen significantly over the past several years. There's no indications of policy direction or change at the Federal Communications Commission (FCC) in the U.S, CRTC (Canada) or OFCom (U.K.). which would trigger antitrust or anti-competition hearings.

There are very few industries collecting guaranteed revenue. Utilities and financial institutions are the two biggest. Within utilities, telecommunications has had a unique blend of service 'delivery' since the beginning. Initially, a single entity that provided everyone the services, is what created instant monopolies. Fast forward 80 years, and antitrust had its second big challenge (after Standard Oil) with AT&T, which was broken up in the United States in 1984 and the Canadian "group" of telecommunications known as Stentor self-destructed in 1999 because regulator tariffs choked their ability to compete with new entrance into the market.

In other countries the telecom providers did not face such actions. British Telecom along with their equivalents in western Europe never went through competition audits that required any possible break up of their companies. Generally this is true around the rest of the world. Their markets opened up to new entrants into the industry but none were truly broken up. In Japan NT&T operates as three regional operating entities and international division but are a single corporation.

Over the past decade, in the U.S. some of the former Ma Bells have merged back together. Regional Bell Operating Companies (RBOC's) used to be small(er) regional players. No longer, with only seven major players covering the entire continental U.S. In Canada there were 10 major players; all have reorganised, merged and now only four remain.

Breaking up a telephone company likely won't solve anything and won't save consumers any money. In fact, it might increase the price you pay for service. So what to do?. There are some interesting possibilities, but none are easy and could cause more problems than they solve. Telecommunications is not like Standard Oil, which was relatively easy to break apart. Technology makes it a technical nightmare. Let's try one method anyway.....

An option is to have all regional and long haul carriers break up the assets into two separate parts by splitting up wholesale and retail / commercial services of each company. Creating a wholesale service entity would be regulated by the government (as it is today) and would have strict rules in how it offers services - essentially banning any retail sale to a consumer or directly to any commercial entity, they would only be allowed to resell services to licensed commercial telecom retailers. This opens up some interesting possibilities for competition. The drawback is that it would require imposing regulatory tariffs on services and infrastructure on the wholesale carrier and technology limitations for some components. There would be a temptation to make specialized deals without such enforcement. This causes headaches in government oversight, which is something most would prefer not to have.

With a wholesale telecom model, any commercial telecom service provider could create services that consumers and businesses wanted. They can tailor their products, technologies in their own facilities and then lease the transport network as required for capacity and needs.

The private sector tried this model and failed miserably. Some of you may remember fibre network providers like Global Crossing, 360 Networks and others that fizzled. One reason they did is because they tried to play in both the wholesale and retail markets with limited funds to do both and another was simply too many providers chasing too few buyers.

Another regulation that would be stipulated is no commercial or consumer telecommunications provider would be allowed to have investment in the wholesale entity acquiring or having shares exceeding a 10% or voting rights or interest in the wholesale provider. This would open a neutral door for any competitor access to the core infrastructure of copper and fibre that's in the ground. Vice versa would also apply, with no commercial / retailer provider of services allowed to own long haul or last mile network. In the U.S., Local Access Transport Area (LATA's) were a perfect focal point during the original break up of AT&T. Unfortunately, lawmakers let the new regional Bell operating companies be the operators of most LATA / Intra-LATA's that AT&T was forced (along with other competitors) to use, thus the ability to have a neutral access point was lost. Its decline was rapid when long distance carriers were allowed direct access to the LATA infrastructure a few years later. Wireless has made the infrastructure obsolete.

Another obstacle is the existing non-regional big players that have survived the downturn of the economy that offer and provide local and long haul network service -- and what do you do with them? It's not as easy as it looks and probably why it will never happen. Cellular and wireless networks would be almost impossible to break up and there are no competition indications that such a requirement exists.

It certainly offers the potential for unique opportunities and services. As some of the carriers become larger than the original AT&T was, I doubt we'll see another antitrust break-up in telecommunications.

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