Phone concentration
The telephone industry is restructuring itself at an accelerated rate this summer, and only a few companies will be left standing.
AT&T
First came the recent announcement by AT&T that it would stop trying to promote long-distance to general consumers, concentrating instead on business customers. All commentators took this as another step in the gradual disappearance of what was once the telephone company.
AT&T's revenue was down 13% last quarter alone, according to a Wall Street Journal article ("Bride or Bridesmaid? AT&T and MCI May Compete for Suitors", 8/2/2004). Furthermore, the average customer is down to 60 minutes of long-distance a month, down from over twice as much a decade ago.
The reasons: competition from other long distance services, price wars, free long distance for evenings and weekends for cell phone users, e-mail, and text messaging. Add the oncoming threat of VOIP, and AT&T had to get out of the business.
But what is left for the company? It sold its cable TV holdings and, more recently, its cell phone division. Attempts to get back into the local phone business have been countered by the Baby Bells. The company is running on fumes. The company is burdened with almost $8 billion debt. AT&T has been on the block for a while (BellSouth almost bought it out last year), But its value keeps dipping. Its only real assets are its hardware and its shrinking client list. It looks like bankruptcy or a bargain buyout are the only options.
MCI
MCI, is if anything, in worse shape. Just recovered from the WorldCom collapse, has all the same problems that AT&T has. Its long-distance services are dropping fast, and it has nothing to offer in the fast-growing wireless area. Once again, MCI's client list is its main asset. Like AT&T its is eager to be bought out. Whichever of MCI and AT&T gets bought out first, according to the WSJ article, the other one will be in big trouble.
Sprint
The third of the original long distance companies, Sprint, at least has its cell phone division. It is also now working with small- and medium-size cable companies to supply VOIP technology. They are working wish Time Warner Cable, for example. Sprint will offer the back-office infrastructure to e resold by cable companies. They are, according to a Wall Street Journal article ("Sprint looks to Expand Internet Phone Service", 8/1/2004), the company is doing a far smarter job of getting into this technology than rivals MCI and AT&T.
Baby Bells
Yet another WSJ article ("Bells Mount Two-Way Assault On Local Market", 8/3/2004) traces the way in which the Baby Bells (Verizon, SBC, BellSouth, and, to a lesser extent Qwest) have taken advantage of the eight-year-old Telecommunications Act of 1996. That law was passed to open up long-distance services to the Baby Bells and that the sometime, open up local calling to long-distance companies, both the older ones (AT&T and MCI, for example) and new start-ups (like Michigan's QuickConnect and Florida's Supra).
The Baby Bells have managed to squeeze out all rivals new and old while extending their reach into long-distance. Using their power to occupy a seat at the table, the companies have managed to get the FCC and state commissions to allow them to charge higher connect rates for local access to their competitors. Meanwhile they have slashed their own rates to consumers, even given $100 checks to lure back customers who have strayed to the competition.
Every indication, according to the article, is that the Bells are selling phone service at a loss in order to drive any rivals for local service out of business, while at the same time grabbing a bigger share of long-distance. The matter is now in courts and state legislatures, but even if the Bells tactics are discredited, much of the potential competition may have been driven out of business. AT&T's withdrawal is the first.
The three major Baby Bells can almost taste a new world in which they are the only real phone companies, and since two of them (SBC and BellSouth) jointly own mobile phone company Cingular, the three would be quite friendly enemies, and the rates, very likely, would go back up.
