Old bell system merging back together, but it's not the same

Old bell system merging back together, but it's not the same

AT&T buying BellSouth for $67 billion creates a bigger entity to deal with for regulators.
In an editorial about a year ago, I coined the term “revestiture”. In it, I observed that consolidation – just like in the oligopoly that is the automobile industry – is a natural evolution and is critical for survival:

As a country, we are progressing quickly into what I call the telecom “revestiture”. Revestiture is the industry’s modern attempt to circle the covered wagons and protect the interests of a few. It will be harder to legislate and regulate against a larger entity that swallows up vast markets and infrastructure as other newcomers clamor for open competition.
In 1984 when an expensive cell phone had the status of a GPS system today, a divestiture took place that broke up the Bell system into seven regional Bell operating companies (RBOCs) and broke up AT&T into a regulated and unregulated entity. This was supposed to open up competition and create a new approach to business in the telecom industry.

Instead, it created a whole new slant of RBOCs versus long-distance carriers and it didn’t save the average consumer money. Whatever was saved as long-distance dropped down in price and was quickly spent on local service increases. The net result was that the average consumer didn’t really save money.
Now, with AT&T looking at buying BellSouth for $67 billion, we are truly doing a revestiture of the old Bell system and putting it back together. In fact, this won’t be the old Bell system but a nouveau Bell system that doesn’t have the depth of expertise or the commitment the old one had.
It will be interesting to see if this new entity will rush to build a new network infrastructure that will be the best in the world or try to defend through regulatory lobbying and manipulation the obsolete copper-based one that is still in use today. At the “old” Bell system, that would be the goal: “build the best” and make America first. At this nouveau Bell system, the jury is still out about its true goal.
Some veteran industry people that I worked with two decades ago think it’s all an ego trip of “buying” a rival and just adding it onto the books. Asked one former pre-divestiture Illinois Bell account executive: “What innovation is going to come out of the merger?”
Some assets that were tagged to be spun off to the RBOC in 1984 will be spun back into the nouveau Bell system all at the expense of the ratepayer. What has the consumer really gotten out of this teardown and rebuild of the Bell system? You might start to see a “revestiture fee” on phone bills. That will pay for the obligatory CEO golden parachute the “loser” gets when his organization is bought out.
Broadband must be pushed
In a short time, more and more local and state policy leaders are determining that economic development is tied to implementing broadband connectivity. Broadband connectivity equates to creating jobs.
With AT&T buying up BellSouth and some analysts predicting that Verizon may do the same to keep parity, this only strengthens the incumbent telephone companies into a couple non-negotiating mega powers that will still dictate the terms and conditions of any rewrite bill or sweeping reform of the industry. This can already be seen in some states where restrictive telecom policies have been instituted.
All you can conclude is that those states have politicians who are from the horse-and-buggy era and have been easily swayed to protect the stagecoach lines in a space shuttle era. Restricting new ideas by instituting restrictive policies is not how you regain network infrastructure superiority.
Many crusaders of Wi-Fi and alternative network infrastructures do not understand that getting in the dance requires a huge lobbying effort to ensure policies and tariffs that create a legal cocoon around a business. Having superior “mesh technology and more megabits per second” doesn’t mean anything to people who make regulatory decisions based on who had the best crumpets at their presentation parties or who was able to get a skybox at last year’s World Series.
There is a lot of financial and regulatory power between AT&T and Verizon. There will probably be some type of acquisition on the horizon for Verizon. As both companies add more to their market coverage and subscriber base, don’t be surprised if rates go up. In listening to some of the overnight experts on the various news shows, they do not have a clue about their strategy.
One expert said they will be doing the typical merger consolidation strategies with AT&T likely letting go 10,000 people when they consummate the merger. That is not strategy. That’s tactical cost cutting.
‘Fibertizing’ the network infrastructure
Where is the real creativity in launching a whole new barrage of network services? Is “fibertizing” the network to provide a gigabit per second replacing the dial tone from the copper days? The strategy will just be to cling onto the profits made by the network and create a way to charge more money for being connected on the Internet.
The other “partner” that may cut in at the dance is the cable companies. Even though they are supposed to be opponents, they know that keeping the selection low at the last mile ensures big profits for everyone at the dance.
For all the hype generated by pending municipal endeavors, city Wi-Fi projects and the shrill cries from catalysts for change in the telecom network industries, I still say Ma Bell’s rebuilt Victrola will be playing louder than anyone and setting the rhythms for regulation and rewrites for a long time.
Carlinism: Merging resources can be a very good thing if the right goals are set.

James Carlini is an adjunct professor at Northwestern University. He is also president of Carlini & Associates. Carlini can be reached at james.carlini@sbcglobal.net or 773-370-1888. Copyright 2006 Jim Carlini.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.