Telecom Mergers Get House Nod

WASHINGTON — Telecom’s top executives traveled to Capitol Hill today to
make their cases before Congress for a spate of high-profile mergers that are changing the face of the industry. If the executives’ warm reception from the full House Energy and Commerce Committee is any indication, the mergers will have little trouble in Washington.

“The United States needs to have a vibrant communications industry with
strong national players. I believe the companies before us today are
creating such players and that U.S. economic growth and consumers will
benefit as a result,” Chairman Joe Barton (R-Texas) said in his opening

Democrat John Dingell of Michigan, the ranking member of the committee, said
he was making no judgments as of yet, but cautioned regulatory authorities
reviewing the mergers not to revert to an “antiquated mindset of
compartmentalized, distance-sensitive services and providers. Consumers will
benefit from a realistic assessment of what telecommunications means in the
21st century.”

Rep. Fred Upton (R-Mich.), the chairman of the House Subcommittee on
Telecommunications and the Internet, added, “I consider these mergers a
necessary tune-up for the telecommunications industry, ensuring that the
country’s economic engine is geared up to compete globally. As the tech
sector goes, so does the economy.”

Sprint and Nextel kicked off the merger rush in December when they announced
they were combining in a $35 billion deal. A month later, SBC said it was acquiring AT&T in a $16 billion deal.

Verizon followed in February with a
handshake deal to acquire MCI for $6.7 billion, although Qwest has countered with an $8 billion proposal for MCI.

“Competition from wireless, cable telephony, e-mail, instant messaging and
VoIP will continue to drive pricing, with or without this transaction,” Ivan Seidenberg, chairman and CEO of Verizon, told the House panel. “The consumer
marketplace will continue to become less concentrated over time — with or
without this transaction — as new platforms vie for the broadband

MCI President and CEO Michael Capellas said due to a series of court
decisions and Federal Communications Commission (FCC) rulings, his company
recognized “it would be virtually impossible to sustain its traditional
voice business, especially in the consumer market.”

To offset that loss, Capellas said MCI decided to align itself with Verizon
in order to focus on next-generation services for large companies and
government agencies.

“MCI owns a state-of-the-art IP backbone network, but no significant first-mile facilities or wireless,” Capellas said. “Verizon has extensive first-mile facilities and is upgrading those facilities with state-of-the-art
broadband technology. Verizon also owns an interest in Verizon Wireless.”

Capellas also pointed out that MCI has a large enterprise and government
customer base, while Verizon has a much smaller presence in those markets.

“Traditional models of competition and traditional notions of long-distance
companies or local companies are out-of-date,” Capellas testified. “The
combination of MCI and Verizon is a reflection of the changes we must adapt
to … It is a beginning, an important part of a new and exciting era of
competition in an expanding and converging communications world.”

SBC Chairman and CEO Edward Whitacre also blamed FCC’s adverse regulations
for forcing telecom companies to restructure and led SBC to its proposed
merger with AT&T.

“The reasons for combining these two companies are pretty clear … and so are
the benefits,” Whitacre said. “First, while SBC has a strong presence in
many local markets, we do not have a national or global network of our own.
We lease one. AT&T has those assets, and they are very good.”

He said AT&T would give SBC a better opportunity to compete in the large
enterprise market and provides the Baby Bell with a VoIP option.

“The next big thing in communications technology are Internet-based
services, such as voice over Internet Protocol,” Whitacre said. “IP is
changing how people communicate. It will change how this industry provides
service. SBC does not have a consumer VoIP service. But AT&T does, and we
can use it to compete in our region, outside our region and around the

Timothy Donahue, Nextel’s president and CEO, told the lawmakers the
combination of Nextel and Sprint would position the new company in the
fastest-growing areas of the telecommunications industry, including mobile
data and push-to-talk technology.

“Without this merger, neither Nextel nor Sprint would independently achieve
all the technological innovations, additional coverage and capacity,”
Donahue said.

Sprint Chairman and CEO Gary Forsee noted, “The merger will not change
Sprint’s relative market position. Sprint is currently the third-largest
wireless carrier, and as a result of the merger, the combined company will
still hold the No. 3 position,” he said. “Sprint and Nextel today
have a combined customer base of approximately 40 million wireless
subscribers, compared to 49.1 million at Cingular and 43.8 million at
Verizon Wireless.”

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