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Reason Foundation

Bell System Redux? Not!

Steven Titch
March 5, 2006, 11:23am

The proposed AT&T-BellSouth merger is not, as many say, a return the old Bell System. Many forget that before divestiture, AT&T alone developed, manufactured and owned virtually the entire U.S. phone network as well as everything that connected to it. Google, a company that did not exist at the time of divestiture, today is bigger than any of the four Baby Bells. Vonage, which revolutionized the cost of phone service by moving it to the Internet, is set for an IPO. Philadelphia has signed a ten-year, $25 million contract with EarthLink has to provide citywide wireless broadband services. Apple is bringing out a combined iPod and cell phone. These are just four of many reasons why it's absurd to believe the monopoly-era AT&T can ever return. Still, opponents of the merger have raised the same fears they have in the past of higher prices, poor service and an end to competition. Yet despite the consolidation among cable and phone companies that has occurred over the past ten years, broadband prices continue to decrease while usage grows. Start-ups like Skype and MetroFi continue to appear. New technologies like WiMax and IP video put constant pressure on complacent business models. For BellSouth customers in particular, AT&T brings the promise of a new generation of video services, which it has begun to deploy in Texas and California. While Verizon, AT&T and the cable companies have advanced video technology strategies in place, BellSouth has lagged. The merger will automatically put BellSouth's territory in line for the service upgrades and greater video competition other regions of the country are getting now. The Department of Justice, the FCC and the state regulatory commissions should examine and approve this merger in the context of today's market-driven telecom industry. They should beware of acting as if nothing has changed since 1984. Policymakers since then have rightly sought to give the free market a greater hand in the telecom industry. For the last 22 years, much of that has worked. Now, in 2006, a combined AT&T-BellSouth is the market's way of responding to the need for faster rollout of broadband to more areas of the country and lower prices for consumers through greater economies of scale. It's the right way to go.


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