In telecom wars, choice is the main casualty

Qwest Communications Wednesday won a reprieve in its courtship duel with Verizon Communications for the hand-set of MCI. How strange that the suitor with $1.9 billion more on the table should be the party most in need of a breather. But Qwest has bit of a reputation. Witness the civil charges filed earlier this week against its former chief executive officer.

And Qwest’s warnings that a Verizon/MCI merger will disrupt a competitive balance in the telecommunications marketplace ring a little hollow. This is a company that fiercely resisted opening its network to any interloper, be it a giant like AT&T or any of the many pop-up telephone companies formed in the 1990s to exploit deregulation.

Nevertheless, a successful Verizon bid for MCI, coupled with an SBC/AT&T merger, does suggest many consumers will not have much of a choice when shopping for telecommunications services in the future.

Those four companies, if combined into two, would control three-quarters of the market for some services. By Qwest’s reckoning, its merger with MCI would at least preserve a three-way split, with SBC/AT&T and Verizon still the market leaders.

For consumers who harken back to the simple days before 1984 when AT&T — Ma Bell — was the only voice in the land, two may be too many. But for the text-messaging, voice-over-Internet speaking, and MP3-downloading, there’s no going back. They want services unimagined even one year ago. How do mergers work for them?

Glenn Blackmon has monitored Qwest and Verizon, and their predecessors, for years at the Washington Utilities and Transportation Commission. Now the acting director of regulatory services, Blackmon says he’s given up predicting how consolidations in the telecommunications industry will affect consumers.

“Every time we’re had a merger we’ve had expectations about what it might do, and it turns out to be the exact opposite,” he says.

When Qwest took over US West in 2000, for example, the commission hoped the deal would put an end to chronic consumer complaints about poor service. Service did improve, Blackmon says, but Qwest’s former management team ran the company into the ground. Qwest had to sell off valuable assets when the collapse of the telecommunications industry forced the company to the brink of bankruptcy.

Blackmon says that no matter who wins the MCI bidding war, the result will be a “cozier” marketplace. MCI and AT&T were relentless advocates for greater access to the local networks owned by Qwest and Verizon. As long as those gateways remained with those companies, which serve the majority of most Washington and Idaho residents, there would be little real competition for basic telephone service.

“That’s a good, positive force to have; a profit-seeking company trying to break down competitive barriers,” says Blackmon, who notes Qwest did not squeak when SBC announced it would buy AT&T.

Greg Green has contended with Qwest and Verizon for years, first as president of Nextlink Washington and now as chief executive officer of One-Eighty Networks. The Telecommunications Act of 1996 was supposed to open up local networks to competitors, but Qwest did everything it could to block competitor access to its customers, he says. The company has been much more cooperative under new management. Verizon, meanwhile, has a reputation for being extremely hard to work with.

The handicapper in Green says Qwest has no chance with MCI. Although Chief Executive Officer Dick Notebaert has done much to rebuild Qwest, he says, the company still does not have the financial horsepower of Verizon.

“If I’m from MCI, I don’t want Qwest stock,” Green says.

The Consumer Federation of America and Consumers Union have sided with Qwest in this face-off. In their joint letter to the Senate Judiciary Committee, they say the telecommunications giants have preferred buying new customers rather than competing for them. Beware the consolidation that suffocates competition, they warn, noting that their organizations rarely intercede in bidding wars.

For now, the decision rests with MCI’s shareholders. Consumers are on the sidelines. Should Verizon prevail, they will not necessarily be losers. If Qwest falters, someone else will step up. Telecommunications has been a remarkably dynamic industry. Cable may be the next big player, or satellite companies. Maybe Microsoft.

Just hold the phone. Or whatever.