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AT&T and telco monopolization

Don't fear the large telecommunications company, particularly given that the era of fragmented telecommunications hasn't been good for the American economy.
Written by John Carroll, Contributor

AT&T, or rather, it's former incarnation - SBC - is on a buying binge. They bought a large stake in Cingular year ago (a company that previously bought AT&T Wireless), absorbed AT&T (and took on the name of their new acquisition, a recognition of the good branding associated with the AT&T name), and now want to buy BellSouth. People see shades of a reconstituted AT&T monopoly, and consumer groups - who make a living based on consumer fear - stoke worries of price increases in voice service.

Such fears ignore the realities of modern telecommunictions. Traditional voice telephone service is on a glide path towards obsolescence, ranking up there in importance with makers of horse carriages, washboards and rotary telephones. That may seem harsh, but the trend is there. More and more dispense with home phone service altogether in favor of wireless, a market that Cingular (which would be wholly owned by AT&T post-BellSouth merger) hardly dominates. VoIP grows more credible with consumers due to cost, but there is pressure to change on the supplier side as well. Voice service is extremely wasteful of bandwidth. Far better to use that bandwidth for more efficient digital voice communications (VoIP) than on voice networks which are expensive and comparatively harder to maintain.

Telecommunications companies are turning into clearing houses for digital services. They offer the critical network connection, and they increasingly offer services that run on those networks. Of course, most traditional voice service providers are saddled with the legacy of older voice communication technology. It's going to be expensive to convert that into something that is modern and better able to handle new requirements. Why not let large companies with the billions to take those risks see if they can manage it?

What if AT&T tries to raise phone charges? The outcome would be predictable. The migration of customers away from traditional voice service would be accelerated, which was a criticial component in Japan's enthusiastic embrace of wireless technology (Japanese fixed-line voice service charges are the highest in the world). Economic incentives for cable, wireless, satellite, or even broadband over power lines would be increased, making it more likely they would enter currently underserved markets. Economics is a system of incentives, and the incentives created by an AT&T that attempted something as foolish as boosting voice phone charges would quickly create withering competition that would make it a costly endeavor.

There are principles involved here.

We like to talk about reducing telecommunications regulations, understanding in some vague sense that this is part of the reason that South Korea and Japan lap us in broadband and wireless technology.  Unfortunately, we just can't stop giving in to the temptation to regulate. If we want to see what the world looks like in a truly competitive market free of government influence, you can't continue to act like a deranged gardener every time the tree grows in ways you didn't expect. You need to step out of the way, and see what the market determines is an optimal arrangement.

Like I've said again and again in past articles, the countries currently leading the telecommunications world are notable for a decision NOT to dismantle their former state telecommunications monopolies. That's a lesson worth learning, and a reason for the government to step back and let markets show the right way to do things.

It's a simple fact, in my opinion, that the AT&T breakup was an economic catastrophe that slowed telecommunications innovation through the creation of a complicated tangle of regulations and a fragmented marketplace. America is still paying for those decisions. AT&T's proposed merger now hints at another large telecommunications company on American shores, albeit one that lacks the legal protections that enabled AT&T of old to dominate. Why doesn't it ever occur to anyone that maybe, just maybe, that is the right outcome?

Nuances, nuances.

I talk about reducing regulation, and consider antitrust merger investigations just another form of regulation, albeit one with fewer rules or limits on government action.  However, markets are built on rules, and without them, market systems can't exist.  In the same vein, there are regulations that are necessary, and these can make a market work better.

AT&T is turning into a provider of data pipes, and is offering services that run on those pipes.  This invites the possibility that AT&T will grant preferential treatment to its own services.

That's a valid concern.  Rumors abound of large cable companies throttling service offered by competing VoIP providers in order attract customers to their own offering.

Still, a better solution is "net neutrality" rules which make such actions illegal, not handing government regulators the impossible task of "designing" a competitive marketplace.  The creation of a telecommunications company capable of competing on a global stage is a good thing, particularly as China and India grow to become important telecommunications markets of the future.  Don't try to prevent the creation of such a company.  Instead, make it harder for that company to use its power to ill effect.

Tame the market power, not the fact that companies with such power exist.

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