Hearing of Antitrust Subcommittee - SBC/ATT & Verizon/MCI Merger

Hearing of Antitrust Subcommittee - SBC/ATT & Verizon/MCI Merger

Good afternoon and welcome to the Antitrust Subcommittee hearing examining the proposed mergers between SBC/ATT and Verizon/MCI. As promised, this is a continuation of the examination we began last month at the full Judiciary Committee. The difference today is that rather than hear from the CEOs of the merging parties, we will hear from witnesses who have a somewhat different view.

As you know, I expressed some reservations about these mergers when we first took up this topic. Not surprisingly, the CEOs of the four respective companies acquitted themselves well, and emphasized very clearly that ATT is already leaving the residential market and MCI is likely to follow. In other words, they made the important point that in some ways, these mergers don't change the competitive landscape for consumer services. They also emphasized the impact of inter-modal competition, meaning competition from other forms of service, such as wireless, cable, and Voice Over Internet Protocol.

These are important arguments, and the companies made them effectively. But frankly, I'm still worried. I think there is still a lot more to it. In my mind, at least, it is still an open question whether the SBC/ATT merger and the Verizon/MCI merger are good for competition and for consumers. That, of course, is what we are here to discuss today.

As we began to explore last month, there are a range of issues that raise concerns. Perhaps the one which has received the most traditional antitrust scrutiny so far is the so-called "enterprise market" -- the sector of the market comprised of large businesses with sophisticated telecommunications needs.

All four of the merging parties currently compete in this market sector, so large business customers will likely be affected by the deals, and this area will require close scrutiny. There are also questions regarding the impact of these deals on the markets for long-haul capacity, and in the market for Internet backbone that today's witnesses are particularly well-suited to answer. We are looking forward to those discussions.

As we discussed in our last hearing, however, the critical issue here is inter-modal competition. According to the testimony we heard from the company CEOs, they are facing competition on numerous different technological platforms -- specifically, as mentioned, cable companies, wireless companies, and companies that provide "Voice Over I.P." services.

Once again, we must keep in mind that inter-modal competition, by definition, does not always provide the type of direct competition we are used to seeing. Wireline, wireless, cable -- these services are inherently different and provide similar services in different ways, with different pluses and minuses. Not all will always provide sufficient competitive benefits for all consumers. In fact, there are a number of concerns that have been raised about each, which I know we will explore today.

But most important, in this context, we must discuss whether or not merger conditions are required to ensure that these multiple modes of competition are, in fact, available. For example, Voice Over I.P. is often held up as the poster child for inter-modal competition. In fact, Vonage, one of our witnesses today, is a Voice Over I.P. provider.

It is certainly a very promising product, but our witness, himself, will testify today that Voice Over I.P. is a type of service that is available to the consumer only if he or she has broadband access, and currently that access is widely available only from the phone company or the cable company. Think about it -- Voice Over I.P. providers must rely on their competitors to get access to their customers. Clearly, that is a somewhat tenuous situation, and we will need to consider if the mergers change it at all.

There are several other issues to explore, though I will mention them only briefly. In most places, residential consumers currently face a duopoly choice -- buy an expensive bundle of local, long-distance, Internet, and wireless service from the phone company, or buy an expensive bundle of similar services from the cable company. What impact will the purchase of ATT and MCI have in this situation? Will it allow the phone companies to provide better products and services? Or, will it remove two of the few potential existing market entrants? Another important point is that high speed and wireless broadband will clearly be required for the next generation of services and will certainly help competitors, such as Voice Over I.P. and cable telephone service. ATT and MCI, as independent competitors, had a big stake in promoting the development of broadband. How will these mergers impact the development of those broadband capabilities? Similarly, how will the mergers impact the availability of new wireless spectrum?

Finally, I hope that the panelists will share their thoughts about what we in Congress can do more broadly to help promote competition and innovation in the telecommunications industry. Many have noted the need for a rewrite of the 1996 Telecommunications Act, and it is time to start thinking about what such a rewrite would entail.

Certainly it seems that there is need to free up the spectrum necessary to enhance wireless broadband development. Another issue is the need for the FCC to expeditiously rule in their open proceedings on inter-carrier compensation, special access pricing, and the regulation of I.P.-enabled services. These proceedings have been going on for an extended period of time and the industry is, to some extent, in limbo awaiting the rulings. Outdated legislation and incomplete regulations can only hinder the type of aggressive competition that leads to innovation, better products, and lower prices. So with that in mind, we look forward to hearing from our panelists today on a wide range of issues.

Let me yield at this time to my distinguished colleague, Senator Kohl, Ranking Member of the Subcommittee.

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