Copyright 1999 Federal News Service, Inc.
Federal News Service
NOVEMBER 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
1185 words
HEADLINE: PREPARED TESTIMONY OF
SENATOR
PATRICK LEAHY
RANKING MEMBER
BEFORE THE SENATE
COMMITTEE ON THE JUDICIARY
SUBJECT - "THE MCIWORLDCOM-SPRINT MERGER:
A
COMPETITIVE REVIEW"
BODY:
I am
pleased we are having this heating today. Preserving competition in the
communications industry is an issue of crucial importance to consumers and to
America's economic future. The proposed merger between MCI WorldCom and Sprint
raises once again questions concerning the effectiveness of the
Telecommunications Act of 1996 in promoting competition rather
than consolidation.
One of the major reasons I voted against the
Telecommunications Act of 1996 was my concern that its promise
of real competition was illusory, and that consumers would end up paying higher
prices. We have all enjoyed the benefits of extensive price competition in the
long distance industry, as the three major carders, led by fierce competition
between MCI WorldCom and Sprint, reduced their long- distance rates to the
lowest point in history. None of us want to see a merger between two of these
three carders put an end to this welcome competition, as well as the benefits
that long distance consumers have derived from it. This merger is certainly the
largest horizontal merger we have seen in the telecommunications industry, and
it therefore raises questions that mergers such as the SBC-Ameritech and
GTE-Bell Atlantic mergers have not. When two large and direct competitors in
such an important industry merge, it is a cause for concern. That being said, I
am grateful for the opportunity to hear the thoughts of today's witnesses on
this topic, and I plan to keep an open mind on this issue.
I do, however,
continue to fear that concentration of ownership in the telecommunications
industry is proceeding faster than the growth of competition. Fewer than 20
years after AT&T's monopoly on long distance was broken up, we are now faced
with the prospect of a long distance duopoly consisting of AT&T and
WorldCom. Meanwhile, the regional Bell operating companies continue to
consolidate. I am more than ever reminded of a 1998 editorial in the Rutland
Daily Herald that observed: "It might even seem as if Ma Bell's corpse is coming
back to life."
This rash of consolidation was something I feared and
expressed in my floor statement on the day that the 1996 Act passed:
Mega-mergers between telecommunications giants, such as the rumored merger
between NYNEX and Bell Atlantic, or the gigantic network mergers now underway,
raise obvious concerns about concentrating control in a few gigantic companies
of both the content and means of distributing the information and entertainment
American consumers receive. Competition, not concentration, is the surest way to
assure lower prices and greater choices for consumers. Rigorous oversight and
enforcement by our antitrust agencies is more important than ever to ensure that
such mega-mergers do not harm consumers.
The NYNEX-Bell Atlantic merger has
been followed by numerous other mega-mergers, and the 12 largest long distance
and local providers that existed in 1996 will be pared to six if this merger
receives approval. I do not believe that bigness by itself is bad, and I
understand that mergers can produce economies of scale that benefit consumers
and shareholders alike. I also take note of the fact that the six surviving
companies offer more services today than they did when the Act was passed, in
part due to an explosion of the Internet that few predicted three short years
ago.
But mergers in this vital area of the economy still demand strict
scrutiny from regulators and from this Congress. I have a few particular
concerns about this merger that I would like to see addressed in this hearing.
First, I am concerned about the impact of this merger on long distance
consumers. FCC Chairman Kennard has pointed out in his discussions of this
merger that Americans currently pay lower long distance rates than at any time
in history. If this merger is approved, AT&T and WorldCom will control more
than 80 percent of the long distance market, with its nearest competitor, Qwest,
controlling less than 2 percent. I understand that hundreds of companies sell
long distance services, but I also know that many of those companies are simply
resellers who rely on MCI to sell them bundles of long distance minutes. I am
interested in hearing from the witnesses whether AT&T and WorldCom will have
sufficient incentives to compete on price in the short term, instead of taking
advantage of the inevitable period of time it will take for a major competitor
to arise to maximize short-term profits at competitors' expense. (While some
advocates of this merger have argued that dominance of the long distance
industry will quickly become irrelevant due to the rising power of the Internet
and cellular and digital phones, that theory might also lead to the conclusion
that AT&T and WorldCom have an incentive to maximize long distance profits
while they still can.)
I am also concerned about the effects of this merger
on business long distance users. Forrester Research has reported that corporate
users will suffer as a result of the merger, since MCI is already a market
leader in that area, and since there may be no practical third options for
business users at this time.
Second, questions have been raised about the
effects of this merger on the expense of Internet access. FCC Chairman Kennard
recently pointed out that Americans currently pay the world's lowest Internet
rates. But MCI WorldCom and Sprint are the two largest Internet backbone
providers -- in other words, they run the two largest networks that carry
Internet traffic. The two companies currently control about two- thirds of the
long-haul Internet market. I understand that the parties have signaled a
willingness to divest themselves of some portion of their Internet backbone
business, which I believe would probably be necessary to avoid antitrust
consequences, especially given the increasing importance of the Internet in our
economy. But even so, consumers and businesses that rely on the Internet on a
daily basis will want assurance that disruptions would not result from the
divestiture itself.
Third, I am concerned whether this merger will produce
broader anti- competitive effects. It now seems highly likely that our
communications industry will consist of a smaller number of companies offering a
wider range of services, from long distance to wireless to Internet access to
cable. If that is true, our economy might be better off if our existing
communications companies -- some of which already offer almost all of those
services -- remained in existence and developed competing services in each of
those areas. I understand that one of MCI's major motivations in entering into
this merger was its desire to acquire Sprint's wireless services. I am
interested in hearing from the witnesses whether the American and global
economies might not be better served if MCI developed its own wireless services
so that consumer choices would broaden, instead of remaining stagnant or
decreasing.
In conclusion, I would like to thank our witnesses for coming
here today to offer their thoughts, and I look forward to this discussion of
these issues.
END
LOAD-DATE: November 9, 1999
