MCI/Sprint: Approve the Merger, Improve the Service

| 16 Feb 2015 | 04:19

    Well, let's see. Before Sprint and MCI and WorldCom were created?and there was only AT&T?the cost of long-distance telephony was more than three times what it is now. Once MCI WorldCom completes its acquisition of Sprint, the average cost of long distance telephone calls will likely fall into the 5-cents-per-minute range. By the end of next year, many analysts expect that the cost of long-distance telephony will fall even farther, down to the 3-cents-per-minute range. Long distance telephone consumers won't just be better off as a result. They'll be much better off.

    And MCI WorldCom's acquisition of Sprint isn't even about long distance. It's about wireless communications, which is the future of telecommunications. The glaring weakness of MCI WorldCom has been that it lacked a wireless capability. The company's acquisition of Sprint fixes that problem in one fell swoop. Or, as MCI WorldCom President Bernard Ebbers put it: "The merger with Sprint is particularly timely as wireless communications emerge as a critical component of full-service offerings. Increasingly, wireless will be used for Internet access and data services, two areas in which both companies excel."

    Put aside Internet access and data transmission for a moment. Focus on "full-service offerings," which, roughly translated, means local telephone service. Anyone who has ever had any dealings with Bell Atlantic or any of the other Regional Bell Operating Companies (and that's all of us) knows one thing: while the cost of long distance has gone down, the cost of local service has gone up. This is because long-distance companies actually compete for your business. The Regional Bell Operating Companies (like Bell Atlantic) don't. They're monopolies.

    Wireless communications offers companies like MCI WorldCom and AT&T the opportunity to challenge the RBOC monopolies without having to lease RBOC wirelines. A combined MCI WorldCom and Sprint would have the resources to build out Sprint's already extensive wireless network, thus enabling consumers to make all local calls on mobile phones. The mere threat of this should prevent Regional Bell Operating Companies from raising prices on local telephone service any further. As mobile telephone service becomes more reliable, local telephone costs will fall. Score another win for the consumer.

    Now, consider Internet access and data transmission. The more the government encourages companies like AT&T and MCI WorldCom to become truly "full-service" providers of telecommunications services, the more likely it is that the Regional Bell Operating Companies will be forced to get their acts together and upgrade their product offerings. This cannot happen soon enough.

    The Regional Bell Operating Companies are the primary reason that most people stagger along with 28.8 access to the Internet. They priced ISDN Internet access out of range, thus delaying the development of e-commerce markets by at least five years. They have been pathetically slow in introducing DSL (or very high speed) Internet access service. Their idea of technological innovation has been "call waiting" and "*69."

    The prospect of companies like MCI WorldCom-Sprint (which will be known simply as WorldCom) and AT&T offering wireless and high speed Internet access (and data transmission) makes it much more likely that the RBOCs will (a) speed up the roll out of DSL service and (b) price it more reasonably than they did ISDN service. They'll have to. It'll be the only way to keep their customers in the fold. Score another win for consumers.

    MCI WorldCom's acquisition of Sprint might be a concern if there were a shortage of bandwidth for telecommunications traffic. Theoretically, it might be possible in a short-supply situation for MCI WorldCom and AT&T to "fix" prices. But there isn't a shortage of bandwidth. In fact, the great debate on Wall Street these days is whether or not there's a bandwidth glut.

    Given all this bandwidth capacity, it is impossible for any company to "monopolize" future telecommunications. And with nearly unlimited bandwidth comes technological convergence. With technological convergence comes a brave new world of telephony.

    Imagine for a moment that you have an Internet telephone. Instead of instant messaging back and forth, you talk "over" the Internet. The technology for this exists today. You can buy it. What prevents most people from using it is that the person you're calling must also be online and technologically capable of receiving your call.

    In 10 years, most everyone will be online and able to receive calls over the Internet. Which means that they will only pay for Internet access. They won't have a phone bill, just an Internet access fee. All of their "phone calls" will be "free." Given this reality, it is impossible to imagine how MCI WorldCom's acquisition of Sprint bears any burden at all to prove that it is beneficial to consumers. Because MCI WorldCom-Sprint hastens technological convergence, it necessarily is in the interests of all concerned.

    Of course, Kennard's remarks had nothing to do with reality. He was playing politics. The Regional Bell Operating Companies are perhaps the most potent political lobby (outside of AARP) in the country. They're a very strong presence in Washington and in every state capital. And they employ a large, largely unionized workforce, giving them extra clout when political deals go down.

    It wasn't an accident that at the same time Kennard was throwing sand in the gears of the MCI WorldCom-Sprint deal, he was signing off on SBC Communication's (a regional Bell company) acquisition of Ameritech. And it was not coincidental that immediately after getting FCC approval for the Ameritech acquisition, SBC's chairman announced that he would soon appeal for regulatory approval to enter the long-distance telephone business. At the end of the day, Regional Bell Operating Companies usually get what they want.

    But what we want is better full-service telecommunications at lower prices. The deal on the table that promises to deliver such service (or at least accelerate its delivery) is MCI WorldCom-Sprint. The sooner the acquisition is approved, the sooner we get what we want.