Mr. Ed’s Traveling Salvation Show for Monopolies

Posted: 06/1998

Mr. Ed’s Traveling Salvation Show for Monopolies
Competitors attempting to penetrate the local markets are reporting an assortment of
anti-competitive practices by these same incumbents.

By Casey Freymuth

Internationally, incumbent alliances have failed at many levels. At home, however,
they’ve done a pretty good job of protecting market share by anyone’s standards. When the
Telecommunications Act of 1996 was passed, there were 10 companies that possessed the
ability to significantly penetrate incumbent local markets–the regional Bell operating
companies (RBOCs), AT&T Corp. and Sprint Communications Co. Two years later, the RBOCs
have left each other’s respective markets alone, Bell Atlantic Corp. and NYNEX have
merged, SBC Communications Inc. and Pacific Telesis Group have merged and, now, SBC is
proposing to merge with Ameritech Corp. as well. In other words, they’ve teamed up and
have reduced the number of companies that posses the ability to shake up incumbent market
share from 10 to seven.

All the while, competitors attempting to penetrate the local markets are reporting an
assortment of anti-competitive practices by these same incumbents. Recently, New Paradigm
Resources Group indicated in a May 1998 X-Change Magazine article that its
projected 1997 growth for competitive local exchange carriers (CLECs) was overstated by 20
percent because of CLEC difficulties dealing with RBOCs for issues relating to
interconnection and operations support systems (OSSs). AT&T, prior to the announcement
that it would acquire Teleport Communications Group Inc. (TCG), had indicated that it was
cutting back on its efforts to enter the local markets because of difficulties dealing
with the RBOCs. MCI Communications Corp. has attributed great capital expenses to its
attempts to enter these markets, again with little success.

In my own experience, I have seen clients wrestling with RBOC scare tactics such as
calling local resale customers and asking them if they were aware that they had authorized
the reseller to "disconnect" their services.

Originally, I was worried about the SBC/Ameritech deal because it means that the RBOCs
will have reinforced incumbent positions in nearly every major population center in the
country, but SBC Chairman and CEO Ed Whitacre set me straight. He pointed out, in his
public address, that his company’s proposed merger with Ameritech represents just 12
states, which is far from a national monopoly. Thanks for the numbers-based justification,
Ed. Numbers don’t lie and I can sleep better now. I guess I was looking at the wrong
number–the competitive penetration rate in the local market of less than 2 percent.

Casey Freymuth is president of Group IV, a strategy consulting and publishing firm
to the telecommunications industry. He can be reached by e-mail at [email protected]