Long Time Coming

When one works in an industry, it's somewhat amazing how wrong the press -- including those frequently praised as erudite -- can be about the issues of the day. Take the current wave of mergers in the telecommunications industry, like SBC-AT&T and Verizon-MCI. Verizon to Acquire MCI for $6.75 Billion [Forbes.com].

The usually thoughtful Forbes opined that the MCI deal "is the latest example of how regulatory changes in Washington are continuing to transform the telephone industry." That's hardly the case. Despite the Telecommunications Act of 1996, there have been very FEW regulatory changes in Washington (i.e., the Federal Communications Commission) because the local telephone monopolists -- who years ago were granted permission to merge the "Baby Bells" down from seven to four -- used the courts to overturn almost every regulatory change commanded by the FCC. (Indeed, the basic telecom regulatory and policy issues are the same now as they were two decades ago.) Meanwhile, fundamental technological changes continued to make dramatic cuts in the cost of long-distance, which in turn meant that the source of AT&T's and MCI's earnings was being vaporized by low margins, cell phones and the like. Combine that with huge overcapacity in long-haul fiber optic networks, available post-bankruptcy for pennies on the dollar, and one has all the makings of a classic market glut followed by shakeout.

These deals are not happening because of regulatory changes, rather despite (or maybe even because of) the lack of regulatory change in Washington.

 Posted by glenn