5/9/05
Leading Competitors File to Deny Verizon-MCI Merger
Industry Concentration will Harm Businesses and Consumers – Raising Prices, Eliminating Choices and Slowing Innovation
WASHINGTON, DC - A group of leading competitive telecommunications companies and members of the Alliance for Competition in Telecommunications (ACTel) today filed a petition urging the Federal Communications Commission to deny the proposed merger of Verizon and MCI.
Opposing the merger, the group raised the specter of continued telecom industry concentration driving reduced choices, slower innovation and higher costs for businesses and consumers – and of even stronger monopolies bent on controlling the market, heedless of laws and fines designed to stem a rising tide of anticompetitive practices. The companies that filed the collective petition are Cbeyond Communications, Conversent Communications, Eschelon Telecom, NuVox Comunications, TDS Metrocom and XO Communications.
In support of the group’s position, California Institute of Technology economist Simon J. Wilkie filed a concurrent affidavit charging that the Verizon-MCI merger will undo the vital market separations of the 1984 Consent Decree and undermine the pro-competitive intent of the 1996 federal Telecommunications Act. With the incentive and the ability to thwart competition and raise prices, the merged company will cause significant harm to consumers.
The group noted that in the nine years since passage of the Telecommunications Act of 1996, Verizon has repeatedly violated the law and ignored the conditions barring anticompetitive practices in its own prior merger accords. To date, Verizon has paid a record $220 million in fines – willingly – as a cost of business in its pursuit of market dominance. Approval of the current Verizon-MCI will continue this trend, accelerating harm to the public interest in at least three areas:
- Increased Anticompetitive Conduct in the Business Market. The merger will substantially increase Verizon’s opportunities to engage in unilateral anti-competitive activities by eliminating the market’s key alternative provider of local transmission inputs to business customers.
- Reduced Competition for Residential Services. Similarly, the merger will reduce actual and potential competition in the residential market for circuit-switched services, removing the second largest competitor from the market.
- Collusion on Anti-Competitive Acts with SBC. In tandem with the planned SBC/AT&T merger, the proposed Verizon-MCI merger increases Verizon’s opportunities for coordinated anticompetitive conduct.
Speaking on behalf of the group, Heather Gold, senior vice president of government relations at XO Communications, said, “These harms are substantial and yet largely ignored by Verizon and MCI in their submission. Viewed in the broader context of the planned SBC-AT&T merger, it is hard to imagine a transaction with more potential anti-competitive effects than the combination of Verizon and MCI.”
Gold added, “The FCC has ruled nearly all prior RBOC mergers to be unlawful, and permitted them only with conditions designed to remedy perceived anti-competitive effects. Time and again, Verizon has disregarded these conditions once the Commission approved the merger. Because this new proposed merger dwarfs its predecessors, the potential for anti-competitive conduct exceeds anything seen in the past.”
Among the major negative impacts that would be created by a Verizon-MCI merger, the group cited:
- Limited Choices for Businesses. Ownership of local transmission capacity is highly concentrated in Verizon’s region. Given the steep economic barriers to deploying new competitive facilities, concentration will accelerate under the merger. Yet the applicants state that the merger “will not have any adverse effects on the ability to obtain capacity from competitive suppliers.”
- Higher Prices for Businesses. In key metropolitan markets such as New York, MCI’s bids on business service contracts have been significantly lower than Verizon’s – for example, $110 less per month than Verizon per DS1 circuit. Under the merger, prices in this instance would rise $110 to Verizon’s tariff level. Similar price increases would hit busine ss customers across-the-board.
- Higher Wholesale Prices for Competitors. For circuits where competition is eliminated and the requesting carrier must pay Verizon’s special access tariff, prices will rise approximately 100 percent, according to independent studies. The increase would make competing service uneconomic, forcing competitors to vacate the market.
- Higher Prices and Fewer Real Choices for Consumers. The magnitude of the merged company’s dominance increases the harms to consumers since a relatively small price increase will result in billions of dollars of consumer harm. While the applicants parade wireless and VoIP as competitors to traditional residential voice, the Commission has recognized and ruled that such services merely complement circuit-switched voice. VoIP is far from being a widespread alternative, serving only one million customers vs. the 180 million users of circuit-switched service.
- Tacit Collusion with a Combined SBC-AT&T. Historically, Verizon and SBC have refrained from competing in one another’s markets, violating the requirements of past mergers. The likelihood is that this predilection to avoid direct competition, even in adjacent markets, will continue after their respective new mergers. As a result, the RBOCs’ newly-acquired MCI and AT&T units will be lost as meaningful out-of-region market participants.
- Dwindling Innovation. The applicants claim the merger will stimulate innovation, but provide no supporting evidence – because it doesn’t exist. Innovations in wireless, ISDN, fiber optics, DSL and Internet technology all were fueled by competitive entrants, not by incumbents.
The group also stated that the purported benefits of the merger are speculative, misleading, or in some instances, irrelevant. The applicants claim that the merger will drive increased efficiencies, create a strong US-based global competitor, enhance service to government customers, improve national security, and stimulate innovation. Such “benefits” turn out to be baseless, impossible to prove – or to have motives and results opposite to that claimed.
“The truth is that large carriers dominating the market don’t benefit the competitive landscape at all,” said Gold. “Verizon’s desire to be a dominant global power does nothing to serve the American public, and is irrelevant to the merger petition. As for improving service to the government, it is well-known that network redundancy is the basis of reliable, redundant service. Eliminating a major network provider makes government telecom facilities less secure and reliable.”
Gold added, “It is vital for the FCC to stop this merger. Competition is the lifeblood of the telecom industry and has fueled the rapid delivery and broad affordability of virtually every new telecom technology now benefiting the American people. If a handful of companies are allowed to dominate the market, the flow of innovation will be shut off at the source.”
For more information contact:
Chad Couser / XO Communications
703-547-2746
chad.couser@xo.com
