Will carriers eat their young?

One of the best parts about being a reporter in the telecommunications industry is the access to a lot of intelligent people. More often than not, they're executives with a vision of the industry well beyond the next quarter. In fact, it's a safe bet to say that the vast majority of people I speak with on a regular basis are smarter than I am. Among the smartest group I've ever met was a contingent from that big software company near Seattle.

While touring one of that really big company's really big offices, a number of executives sketched out their own visions of the telecom market five years down the road. Naturally most saw back office systems dominated by their particular operating system. However, while piecing together his vision, one of the executives kept making the point that this company "likes to eat its young."

Of course he wasn't talking about cannibalism or some other aberrant phenomena between parents and offspring. It was meant to illustrate the point that if you aren't constantly reinventing yourself (especially in the hyper competitive software market), you're as good as dead. In other words, if your newest product doesn't obsolete one of your older products, someone else will do it for you.

And though this may seem like a natural assumption for vendors facing competition and a market that shifts faster than the land plates under Silicon Valley, it's not always so true for service providers. Take the current state of affairs in the Internet service provider market.

Last week, AT&T and Tele-Communications Inc. completed their $55 billion merger that will give the biggest long-distance operator a controlling interest in the second largest cable modem service provider, @Home.

At the same time, AT&T is standing in front of local cable franchising authorities and figuratively holding a gun to its head, threatening to pull the trigger if the local politicians don't give it everything it wants. On numerous occasions, AT&T has hinted that its trigger finger just might slip if it's forced to give other ISPs access to its new-found treasure, TCI's cable plant.

Collectively, the ISPs are yelling shoot. But time after time, local politicians (and even the FCC) have backed off to "study" the issue before making a rash decision.

Such thought and study would be commendable if it amounted to a set of rules that let all types of service providers create innovative new services, allow for broadband competition and set up an environment that requires carriers to "eat their young." Unfortunately, the way AT&T has been acting in front of local cable boards, I don't see it happening anytime soon. In fact, if I were a betting man (and I am) I'd be willing to say AT&T will spend more time and effort in the next year fending off ISP competitors wanting access to its cable networks than expanding data service.

Not that the whole transaction is anti-competitive. Quite the contrary, it will be nice to finally see residential customers get a competitive choice for voice services even if it is only in a few limited markets this year. Just the threat should be enough to get better service out of incumbents.

Not surprisingly, some local telcos used last week's deal closing to point out the uneven regulatory regimes. Ameritech in particular took exception to that fact that AT&T continues to attack its proposed merger with SBC.

In a prepared statement, the company said it is the "height of hypocrisy for AT&T to attack the SBC/Ameritech merger, and to try and keep us from creating a global and national full-service competitor, while they're aggressively doing exactly the same thing, for exactly the same reasons."

Noting that when combined with MCI WorldCom and Sprint, AT&T's market share is more than 90%, Ameritech made little mention of impending local voice competition. It did however point out that groups backed by those same carriers (mostly AT&T) had spent more than $3 million in advertising trying to derail the SBC merger. All of which point to the need for the FCC to let RBOCs into long-distance, according to Ameritech.

Whether that holds true is up to the FCC and state PUCs. It's time for both groups to reassess the rules and figure out a framework that forces the carriers to cannibalize themselves.