Opponents sharpen aim at big mergers

Opponents to the major telecom mergers are not backing down. Tuesday, a group of opponents of both SBC’s acquisition of AT&T and Verizon’s acquisition of MCI issued a research study claiming the mergers will drive up corporate telecom bills by 15% by gutting competition in the wholesale market. In addition, hedge fund Deephaven Capital Management said it will seek Securities and Exchange Commission approval to lobby MCI shareholders against the Verizon acquisition.

The Alliance for Competition in Telecommunications (ACTel) Tuesday released a study by former Federal Communications Commission economist Simon Wilkie that claims pulling AT&T and MCI out of the competitive market for wholesale services will significantly damage that market, driving prices up by almost 20% in that sector and reduce the telecom choices of large corporate customers. The study was submitted to the FCC late Tuesday by ACTel.

“These competitive harms are so substantial that the mergers should not be approved as filed,” Wilkie said in a press conference Tuesday. A Verizon spokesman called the hedge fund opposition to its MCI offer “nothing new,” since a segment of the investment community has opposed the deal almost from the outset. Matthew Halbower, a portfolio manager at the hedge fund, Deephaven, said his firm will petition MCI shareholders to reject Verizon’s offer in the proxy vote this summer, in hopes of convincing Qwest Communications to reinstate its larger bid.

The spokesman said the Wilkie study results were “predictable, given the interests of those behind it.” In a printed statement, he labeled the allegations that the merged telecom players will control the market as “ridiculous.”

“Nobody can ‘control’ this new marketplace--there are many domestic and international players,” the spokesman said. “In fact, Verizon-MCI will have only a 16 to 22 percent share of the enterprise market.”

Wilkie, now a professor at the California Institute of Technology, claimed, however, that SBC-AT&T and Verizon-MCI together will control a substantial percentage of the wholesale connections going into commercial businesses in their in-region markets, since AT&T and MCI were the primary competitors to the incumbent Bell in any given market. By reducing the wholesale connections, the two large players reduce the choices of enterprise customers and set the stage for higher prices.

In Chicago and Los Angeles, Wilkie said, the two conglomerates will control at least a combined 95 percent market share of commercial buildings. Based on past behavior in Los Angeles, where their territories abut, they are not fierce competitors with each other, he added. In Cleveland, commercial buildings with a choice of wholesale carriers will decrease by 56%, and in Milwaukee by 64%.

“The proposed mergers are bad for business,” Wilkie said. “AT&T and MCI are the industry’s largest local competitive providers to business customers--both retail and wholesale. If they are taken out, SBC and Verizon will have a stranglehold on their respective territories, with little incentive to compete against one another. If these proposed mergers are approved, we’ll have effectively turned the telecom clock back more than 20 years.”

Competitive carriers depend on the ability to lease facilities into commercial buildings--since building their own networks is a time-consuming and costly business--and they have been able to get the deepest discounts on those connections from AT&T and MCI, Wilkie said. Typically, those two companies underbid the incumbents by 50% to 60%, he added. If that competition is eliminated, wholesale prices will rise.

“Even where AT&T and MCI don’t win the bid, they cause the winning bid to be lower,” Wilkie said in his press presentation Tuesday.