Fewer telecom players but more competition

THE BALTIMORE SUN

If SBC Communications succeeds in buying its former parent, AT&T; Corp., the reunion of two players in the old Bell System could set off another round of mergers in the rapidly consolidating phone industry. In other industries, a dwindling number of players typically means fewer choices and higher prices for consumers.

Yet in the telecommunications industry, technology is turning that logic on its head. Cell phones, high-speed Internet connections and video - not plain old phone lines - now determine the winners and losers in today's market. Cable providers and a host of new businesses that barely existed a few years ago can easily provide those services just as well as old-line phone companies.

According to executives close to the deal, AT&T; and SBC, the second-largest regional phone company, could reach agreement as early as this week. But even if the talks stall, the industry reformation is likely to continue apace.

For most consumers, the spread of these technologies has reduced prices on services and will continue to do so in the coming years, albeit more slowly. Rates for cell phone calls have fallen to 11 cents a minute last year from 56 cents in 1996, according to J.D. Power and Associates. The price of long-distance calls has dropped just as sharply. Competition between new technologies has made it possible for consumers to get more for their money with unlimited calling plans, video on computers and ever-faster Internet connections.

"Consumers have clearly won as real competition and the threat of future competition has developed," said Jeffrey Halpern, a telecommunications industry analyst at Sanford C. Bernstein & Co.

Few people envisioned this technological free-for-all in 1996 when Congress last overhauled regulations in the telecommunications industry.

Yet less than a decade after the federal law was enacted, consumers are seeing a convergence of services barely imagined then, as television moves onto cell phones and e-mail moves from computers to televisions.

Cable companies now sell phone lines, and the regional Bells are making plans to enter the television industry.

Meanwhile, Vonage, an upstart from New Jersey, offers unlimited local and long-distance Internet-based phone calls for $25 a month. And millions now buy mobile phone service from resellers like Virgin Mobile, which do not even own radio spectrum.

Technology is not just realigning the players on the chessboard, it is erasing some of the biggest and best-known companies altogether. Regardless of whether AT&T; is bought in the near future, that the company that created phone service in America could be for sale suggests how fast the industry has changed.

In the 1990s, phone lines into consumers' homes were still considered the industry's mainstay. Now, they are "dumb pipes" that are conduits for broadband Internet access, video and other services.

"Consumers want bundled packages of services from a company they know and trust," Edward Whitacre, SBC's chairman and chief executive, said in an interview late last year.

Still, there will be losers in the industry realignment. Consumers are increasingly being pushed to buy bundles of services that, while discounted, can still cost hundreds of dollars a month. And customers in search of just a local phone line may not enjoy big savings.

Gene Kimmelman, a senior director of public policy at Consumers Union, which publishes Consumer Reports, argues that the sale of AT&T; would mark "the end of the era of cutthroat long-distance competition and growing local competition."

Regulators are thought unlikely to block the deal between SBC and AT&T.; In recent years the Justice Department has approved several large mergers, signaling its intention to let the regional phone companies, wireless carriers and cable companies get even larger. The logic appears to be that the cable industry and mobile phone carriers are a sufficient counterweight to the regional companies.

By swallowing its former parent, SBC would in some sense be reassembling part of the Bell System, but this time it would stand among other oligopolies.

For AT&T;, a collapse of the merger talks would mean the risk of continuing to die a slow death. It is ensnarled in a seemingly endless price war as Internet technology drives down the cost of phone and data services. AT&T; expects sales to fall a staggering 15 percent, or $5 billion, next year.

"A Fortune 500 shrinking 15 percent a year is not natural," said Scott Cleland, an analyst at the Precursor Group. "The pressure here is coming from a once-in-a-hundred-years technology that makes it dramatically cheaper to offer voice and data."

In aggregate, consumers are spending more, but they are also receiving more. Since 2000, monthly household spending on communications has jumped 33.8 percent, to $164.91 from $123.23, according to TNS Telecoms, a market research firm. Most of the increase has come because consumers are spending more on wireless phone and high-speed Internet services, both of which have doubled in the past four years.

But consumers get far more for their higher bills. About a third of American homes now have broadband lines that offer unlimited access to the Internet.

The same is true for cell phone services. Wary of scaring off consumers, carriers are throwing more minutes at them. Cingular Wireless now lets consumers roll over their unused minutes to the next month, while T-Mobile offers 1,000 monthly minutes for a flat rate of $46. Other carriers let family members on the same plan call each other for free.

The discounts have made it cheaper to talk. Since 1997, the average number of minutes used by consumers has risen by 362 percent, according to the Cellular Telecommunications and Internet Association.

"On the whole, consumers are saving money," said Charles White, a vice president at TNS Telecoms. The danger, he said, is that some consumers who buy bundles of services may not use all of them.

Even for consumers who only want a phone on the wall, prices are edging lower. Residential spending per month on fixed-line phones has dipped 16 percent since 2000, to $47.22. The price pressure has come from resellers of local service like AT&T;, and from lower long-distance calls. And now that AT&T; no longer markets its services to residential customers, cable companies like Cox Communications and Comcast are stepping in to take its place.

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