Baby Bells

Baby Bells quash competition

A landmark 1886 telecommunications bill mandated that local telephone companies would have a chance to offer long-distance service in return for offering low access rates to competitors like AT&T, Sprint, and MCI so those companies could compete on local calling. The local companies, the so-called Baby Bells (Verizon, SDC, Bell South, and Qwest) have done everything in their power to keep from opening up local phone service according to the law.

And they are winning. A recent court case struck down the local access provisions of the law and the Bush administration's Solicitor General, who is charged with upholding the law, decided not to fight it. As a Business Week article (“The Baby Bells' Mighty Muscles”, 5/16/2004) states, this is a sign of the growing political power of these four companies, what we would call oligopoly power.

The political power reaches beyond the federal government, where the Bells are active lobbyers and contributors ($4 million so far for the 2004 election), to state and local governments as well. As the article puts it “No one is suggesting that their money buys decisions like the crucial U.S Solicitor General ruling of June 9. But by spreading around the largesse, the Bells make sure that their voice is heard in Washington and the state capitals.” Well, it all depends on how you define the word “buy”. One Clinton administration official is quoted as saying “There is probably no more powerful lobbying group than the Bell operating companies.”

These four regional Bell Operating Companies (RBOCs) act mostly in concert even though in the wireless industry they are rivals through Verizon Wireless and Cingular (jointly owned by SBC and Bell South). They skirt antitrust rules by nominally working independently, but their mutual interests are clear, and their biggest enemies are the long distance and independent companies.

The next big obstacle for them is voice over IP (VOIP or Internet telephony), and it's clear that they use their clout to make life hard for any new upstart competitors. The top  issue will be the extent to which VOIP is regulated by the government, plus the ease with which VOIP users will be able to access land lines. The Baby Bells have to be gearing up and building their list of grateful politicians in order to mount that fight, since losing it could sink them all.  [Oligopoly Watch]

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