The Bells Harmed The CLEC Industry:
Bell Funded Study by Brooking's Crandall
on CLECs Is Flawed.
New Networks Institute
Bruce Kushnick, Executive Director
826 Broadway, Suite 900
New York, NY 10003
All Rights Reserved.
The Bells Harmed The CLEC Industry:
Bell Funded Study by Brooking's Crandall on CLECs Is Flawed.
This report is an attempt to supply evidence that the Bell companies' anti-competitive behavior and lack of enforcement has been the major impediment for competitors to offer local phone and DSL/Broadband services, not the Competitive Local Exchange Companies' (CLECs) business plans as some would suggest.
A recent report titled "An Assessment Of The Competitive Local Exchange Carriers Five Years After The Passage Of The Telecommunications Act " written by Robert Crandall, Senior Fellow at the Brookings Institute, (released June 2001) and funded by the Bell backed USTA (United States Telecommunications Association) concluded that the collapse of the CLECs' market was caused primarily by their own mistakes and not caused by the Bell companies treatment of competitors. We believe Dr. Crandall's conclusion unwarranted and his analysis flawed by his decision to ignore an ample body of evidence to the contrary.
Dr. Crandall's report reviews each of the many explanations for CLEC failure prevalent today in discussions of the industry's troubles. To read the Report and USTA releases: http://www.usta.org/crandall_media_kit.html He notes that:
"Some observers have attributed the recent poor performance of the CLECs to the actions of the incumbent local carriers without providing any evidence that these inter-carrier relationships are the principal problem for the new entrants" (9) (page 10)
As evidence, he cites the number of recorded, formal CLEC complaints about Bell behavior and Bell performance in opening up their monopoly local service markets as required by law. He notes that the number of these complaints represents only 1-2 percent of the total number of market-opening commercial arrangements the CLEC have negotiated the Bells and concludes that Bell bad acts were too few in number to explain the widespread distress of the CLEC industry.
As we will show, there is a great deal of evidence Dr. Crandall overlooked and that points to widespread examples of Bell company behavior that caused harm to the CLEC industry. Nor, as is probably routine in any study sponsored by the Bell and other telephone companies, does the Crandall report discuss the incentives and ability the Bells have to harm new CLEC entrants as a monopolist in control of essential facilities these new entrants need to begin a competing local service business. Because of these oversights, the number and impact of Bell-caused problems CLECs have confronted and the dangers inherent in relaxing or eliminating current regulations designed to at least partially mitigate Bell monopoly power are vastly underestimated.
The Crandall report certainly doesn't reflect the views of the CLEC industry. Instead, the report's conclusion, that it was NOT the Bell companies who are responsible for the CLEC failures, is exactly the answer the sponsors/funders of the report wanted. And considering the headline of a Washington Post article "Baby Bells Not Responsible For Telecom Troubles", the report got the attention of the Beltway. http://www.washtech.com/news/telecom/10789-1.html
Even Michael Powell, Chairman of the FCC, echoes the theme of CLEC failed business plans as if it was the primary reason for the CLECs problems. (Letter sent by Chairman Michael Powell to the leaders of the Senate and House Commerce and Appropriations Committees on Friday, May 4, 2001)
"In my view, the difficulties currently facing the CLEC industry stem from a variety of conditions .Although there are examples of CLECs with workable plans other CLECs appear to have steadfastly adhered to business plans that show little or no promise of profitability."
There are some points the report makes that we agree with. For example, we agree that some of the CLECs were overextended in their attempt to gain market coverage. And we agree that some of the firms had overly-optimistic projections. However, the primary flaw in the CLEC business plans was that they underestimated the obstructionist behavior of the Bell monopolies and did not take into account the billions of extra dollars that was needed to be spent to connect to the local phone networks, or to fulfill orders and installations. They were under the impression that the laws would be properly enforced.
However, the bottom line is that America's phonelines are in the Bell companies' monopoly control and ultimately anyone who wants to compete has to connect to them or rent some component to offer service, from local services to DSL. And the data coming directly from the CLECs and other reputable sources clearly indicates that the Bell companies were the major harm to competition in America, not the CLECs business plans.
The CLEC Industry Is Not Represented in Brookings Report.
The CLECs are the mostly small entrepreneurial firms who have attempted to compete for voice and data services (including DSL) based on the laws that were created as part of the Telecom Act of 1996. Unfortunately, the entire industry is on life-support. .For example, just read the news headlines covering the CLEC and ISP markets, and you can clearly see the corporate carnage. These are but a few of the hundreds of articles.
To see the dramatic downturn shift in the CLEC's value, see the Association of Local Telecommunications Services, (ALTS) chart of "Public CLECs Market Cap & 52 Week Performance", which reveals an average drop of 80% in value---- some $130 billion. (See Appendix One for details.)
Although Crandall quotes articles, it seems he never bothered to talk to, interview or poll any of the companies he was writing about--- i.e.; the CLECs. Therefore, the report does not present any of the material that would have revealed the true story of what has occurred, such as testimony given in front of Congressional committees, surveys, lawsuits or any other piece of data that would have contradicted the report's findings and provided evidence that the premise was flawed.
Had the Report done that, the author might have found that the Bells have largely been responsible for the destruction of the CLEC markets, through a number of activities, from providing sub-standard customer services to competitors, predatory pricing of network services, and even illegal acts, from withholding payments to stealing customers. And all of this has been documented and is available.
The CLEC Side of the Story
The Report claims that of the hundreds of CLECs, some of whom are now defunct, there are three successful CLEC companies ---Time Warner Telecom, McLeod USA and Allegiance Telecom.
"The most successful of the new entrants are Time Warner Telecom, McLeod USA and Allegiance."
So it is ironic that within weeks of the report's release, two of the three companies presented testimony that the Bells were harming the competitive industry. For example, Royce Holland, Chairman and CEO, Allegiance Telecom, Inc, and Clark McLeod, Chairman and CEO, of McLeod USA both testified at "Competition in the Local Telephone Marketplace", a Senate Commerce Committee hearing on June 19th, 2001. Both CEOs clearly implicated the local Bell monopolies and the lack of enforcement of the current laws as the clear enemy of their business plans. See; http://www.mccleodusa.com/html/ir/presentations.php3
Mr McLeod stated:
"Local competition has developed much slower than long distance competition. The reason is that the Bell companies have successfully denied competitors equal access (both economic and functional) to their local network."
His point of view is that the networks are not open and there is no "equal access" today.
"The answer for local competition is to mandate equal access and enforce it. Unfortunately, there is not equal access today, either economic or functional. Economic equal access does not exist today, because competitors are not getting what they pay for. Competitors pay for 100% service from the Bells but receive far less."
And he believes that without fixing the current Bell caused problems there will not be an industry.
"Competitors, after spending billions of dollars, have averaged a 1% marketshare gain per year. If you extrapolate, there will be no one is this room still alive by the time we have meaningful local competition. And in fact, competition may die enroute. Congress needs to finish what was started in 1996 and take action now to mandate equal access and enforce it."
This material was not quoted in the Report. And there are thousands of other documents that attest to the Bell networks not being open to competition. There is no equal access today. For example, recently SBC, one of the Bell companies, decided to withdraw their application for entry into long distance in Missouri because the FCC found that the network services were not open. The statement by FCC Chairman Powell: (June 7, 2001)
"During the FCC Common Carrier Bureau's review of SBC's Section 271 application for authority to offer long distance service in Missouri, concerns surfaced related to cost-based pricing in its region and operations support systems (OSS). Given these concerns, SBC has chosen to withdraw the application."
In fact, only 5 states have been able to show that their networks are appropriately open to competition, which is the pre-condition that must be met before a Bell can offer long distance in a state. That means that 90% of the states are not open yet.
And how unopen are the networks? A Department of Justice (DOJ) report (FCC Report CC Docket No. 01-138, Evaluation of the US Department of Justice, July 26, 2001) pertaining to the long distance application of Verizon in Pennsylvania stated that they can not recommend that Verizon enter into long distance because the evidence pertaining to the Bell's electronic billing shows serious problems, thus harming competition.
"Verizon's electronic billing problems have been extensive, and the record contains little evidence that they have been fully resolved. Given the impact of these problems on competitors in the market, the Department believes that the Commission should carefully examine whether, in the Commission's judgment, it can be determined that billing problems have been addressed sufficiently to alleviate these concerns before Verizon's application is granted."
But it becomes surreal when we find that the phonebills to competitors was not electronic but delivered on paper --- Imagine the problems an average customer encounters reading one phonebill --- then multiply it by 10,000 to 20,000 lines.
"Until May of this year, Verizon's official wholesale bills in Pennsylvania were the paper bills it provided to CLECs. CLECs were required to rely on the paper bills to resolve payment disputes with Verizon. CLECs claimed that the paper bills were so voluminous that they were unable, due to resource and time constraints, to audit those bills fully or effectively, and thus may not have fully determined any inaccuracies contained in the paper bills."
Complaints and Problems are Continuous and Numerous, Not "Relatively Rare".
The primary thesis of the report is the finding that the problems caused by the Bells are "relatively rare" and therefore not the principal cause of the CLEC's troubles. The author writes:
"Customers have complained that service is either not installed by the agreed date, or that their calls are disconnected and poorly routed. CLECs have blamed the ILECs for these problems, arguing that faulty ILEC network connections reduce CLECs' quality of service. ILECs have in turn responded that CLEC problems are the result of CLEC errors in routing calls. However, as I shall show, these complaints are relatively rare and could not be the principal cause of poor CLEC quality."
He bases his argument on his survey of public service commission formal complaints, and states that less that only 1% of the companies have filed a formal complaint.
"However, I found only 126 instances in which a CLEC filed a complaint with these PUCs over compliance with the interconnection rules promulgated under the 1996 Act. Thus, formal complaints occur in only about 1 percent of the sample of agreements."
This finding is truly embarrassing because the problems the Bells are creating for competitors, and therefore their customers, are continuous and occurring in virtually every state, hundreds of times a day. This report doesn't bother to do simple things such as go to http://www.dslreports.com and read the thousands of complaints written by the frustrated customers of the CLECs, or did the author call a competitor and ask about the complaints or the complaint process. For example, one complaint can cover hundreds of cases with problems, or the complaint could be a collection of the numerous complaints a CLEC has filed (many states aggregate the complaints of a specific CLEC or ISP.) More to the point, many of the CLECs and Internet Providers have given up on complaint filing because there can be a 2 year wait for a response and action, it costs tens of thousands of dollars in lawyers fees, and the company will most likely never get compensated for the customers they have lost, or compensation for their problems. Meanwhile, a number of Internet Provider groups have given books worth of bad acts/complaints to the FCC which have, to date, been ignored. The Report also makes no attempt to examine the overall complaints filed by customers of the CLECs. So simply stating that the number of complaints filed are so small as to make the problems a rare occurrence and not significant, is to be naive to the complaint process in general, or the problems in particular. We do agree with the author -- formal complaints are rare.
And how bad is it for those seeking justice from the regulators? Dave Robertson, the head of the Texas ISP Association, recounted his recent meeting with Chairman Powell and senior staffers at the FCC Enforcement Bureau.
"The meeting was Tuesday May 8th. In a nutshell, all the "bad acts" submitted to them to date have resulted in exactly "ZERO" dollars in fines, and little delay in their 271 approvals for the Bells to jump into the long distance market. We asked for something blatant as handwriting on a wall as to the future of the complaint process as we are approaching it. We got it. WE SHOULD EXPECT NOTHING FROM THE INFORMAL COMPLAINT PROCESS. We should expect nothing from any complaints we have submitted to date.
Flawed Statistical Analysis: There is one other issue that also needs examination--- the methodology of counting state agreements vs counting the total number of CLECs who have these agreements. The author deduced that there were a total of 10,342 interconnection agreements.
"I determined that approximately 10,342 interconnection agreements have been completed between an ILEC and a CLEC since the 1996 Act."(Page 33)
The real disconnect is that according to the FCC's competition report "Local Telephone Competition: Status As Of December 31, 2000", May 2001, the FCC's data only included 86 CLEC companies.
"In the Form 477 due March 1, 2001, 165 ILECs filed a total of 331 state-specific reports on their local telephone service and 86 CLECs filed a total of 369 reports. Of these, 13 ILEC reports and 53 CLEC reports were from carriers that had fewer than 10,000 lines in a particular state and were thus voluntary. Qualifying carriers were required to report services in the fifty states, District of Columbia, Puerto Rico, and Virgin Islands. Carriers were invited, but not required, to make voluntary submissions for American Samoa, Guam, and the Northern Mariana Islands. No such voluntary submissions were received." Page 3, footnote 6. (Emphasis added)
Of course there are some CLECs that did not voluntarily send in information. However, this information is the basis of the FCC's analysis of local phone competition.
More to the point, when we went through various CLEC information sources, including CLEC.com, we found only 278 CLECs listed, and this included all the Bell companies, including Nevada Bell, Verizon, SBC, and Ameritech, as well as a number of now defunct companies. In cross-referencing the state agreements, we found that the Bells each had CLEC agreements in every state.
If these 278 companies are the entire CLEC universe, then, using the complaints filed, almost half of all CLECs on average has filed one or more Formal Complaints --- a very high number. Obviously, counting agreements vs the companies makes the difference between companies being harmed or companies not being harmed. And this does not account for the thousands of informal complaints, law suits, customer complaints, complaints to the FCC, etc.
Competitor and User Issues and Data.
Now let's examine the silent majority of competitor and user issues.
Competitor problems happen in many different ways. For example, Royce Holland of Allegiance testified that there has been a 'systematic attempt to thwart sales efforts" -- on a customer-by-customer attack. http://energycommerce.house.gov/107/hearings/05172001Hearing222/Holland339.htm
"We have had additional experiences that we believe warrant Cease and Desist action as well. The RBOCs have the ability to thwart CLECs' efforts to attract and retain customers in a myriad of ways other than poor provisioning of the facilities needed to provide service. It has come to Allegiance's attention that Verizon appears to be engaged in a systematic attempt to thwart Allegiance's sales efforts by, among other things, calling our prospective customers after we submit orders to Verizon to switch the customer's service to Allegiance and offering the customers a better deal if they cancel their orders with Allegiance."
Installation Issues Abound
Covad Communications, a CLEC that sells competitive DSL, testified in front of the Massachusetts Department of Telecommunications and Energy (DTE) that the Bell caused problems are continuous -- everything from not completing the wiring installation to playing favoritism with its own DSL product. (NOTE: Bell Atlantic Massachusetts is now Verizon.) ("Summary Of Testimony" DTE 99-271, Testimony Of John Berard, Michael Clancy, And Minda Cutcher On Behalf Of Covad Communications Company.)
This favoritism was also found in FCC released Verizon-Massachusetts information in the "Provisioning of POTS" (local phone service). From 1997 to mid-2000, Verizon's treatment of their customers has remained fairly stable with 95% of all Bell orders handled within five days. However, services supplied to CLECs have eroded, from 85% of installations being completed within five days in September 97 to having only 25% of the CLECs services being completed in a timely fashion in June 2000. This means that when a line is ordered by the CLEC, approximately 70% of the time, the customer using a CLEC will wait longer for the service installation to be completed. http://www.newnetworks.com/massfccslides.htm
But it gets even sadder when you realize that one class of competitor, the Internet Service Providers, who use the CLEC as their local phone company, have been totally ignored ---- and totally harmed. For example, in New Networks Institute's surveys of Internet Providers we went through the actual logs of the companies and found that over 50% of all DSL orders had problems that could be attributed to the Bell. And the overwhelming evidence is that this is common, not uncommon. And none of this data would have been part of the author's formal complaint 1% figure. The author's "rare occurrence" is nothing but a made up, inaccurate accounting of the problems. See: http://www.newnetworks.com/isptexasnysruvey.html
This was also discussed in an email that Earthlink, who uses Covad as its CLEC, sent its prospective customers about their orders. The finding: the Bell Atlantic 'No-show' rate for installation appointments was 'as high as 50%" (Source: USA Today article, "DSL stands for doesn't seem likely. There's nothing high speed about joining the broadband revolution". (8/30/01).
"Covad's experience has shown that Bell Atlantic has a 'no-show' rate as high as 50% on their installation appointments. We do think it's important for you to know of this potential problem prior to signing up for the service."
We would like to point out that the Bell companies have continually given the press and media bogus statistics on their DSL services to competitors. In January 2001 Verizon stated on CNN/fn that 95% of all installations went through on time and of the 5% that didn't, these were caused by the competitor or customer. (CNN/FN, Digital Jam, 1/26/01)
On the same program, Joe Plotkin, of Bwaynet, a New York based ISP who uses a number of different CLECs to provision DSL, was explaining how there is a 'chain-of-pain' meaning that the customer, the ISP and the CLEC are all beholden to the Bell for service and installation. He stated that over 50% of the installations had problems ---the majority of which were caused by the Bell company.
There's a host of other data that shows the problems with installations, though from a different vantage point. The Communications Workers of America (CWA) in October 2000 released a report claiming that Verizon-New York's own upper management was telling its staffers to falsify data on installations, thus making it look to the public that installations were all happening on time. This material shows that the services provided by the phone companies had problems that were not a "rare" occurrence at all, but that services provided to customers could have problems --- on any order. For example, the CWA report found:
To read the CWA report see; http://www.newnetworks.com/cwafiling.htm
From the Competitors perspective, this data confirms what the competitors already know -- that problems are continuous and not some rare occurrence as the author (and the Bell) would like the reader to believe.
The testimony by McLeod and Allegiance goes on and on about the issues, including predatory pricing, illegal acts, etc. As Mr. Holland from Allegiance states in his testimony in front of the House Commerce Telecommunication Subcommittee, the Bells have not complied with the law and have "abused their dominant market power in many ways",
"The robust competition envisioned by the Telecommunications Act of 1996 has been painstakingly slow to develop on a broad scale in the SME and residential mass markets... "Instead of invading each other's monopoly service territories and competing for each other's customers, the RBOCs have focused on combining their forces to form even larger monopolies and have devoted scant effort to complying with Sections 251 and 252 of the Act. The RBOCs have abused their dominant market power in many ways, including illegally withholding payments for exchange of traffic with CLECs."
In some cases, the overall harm to ISPs has gotten so bad that the on July 26th, 2001, the California ISP Association (CISPA) filed a formal complaint with the state commission. The press release headline says it all. "California ISPs File Complaint Against Pacific Bell, Charge Anti-Competitive Conduct - Remedies For Abuses Sought From State Regulators." The claim is that SBC/Pac Bell has given such as odious contract to the ISPs, that they have, en mass, refused to sign it.
"Recently, SBC has requested that ISPs submit to unreasonable contract terms that would allow SBC to obtain access to confidential information about ISP customers. Through Pac Bell and SBC-ASI, its affiliates, the Texas behemoth wants to modify its network in order to use this confidential information to market new services. "
Of course all these actions directly harms the CLEC business. To put all this into perspective --- Imagine trying to run a competitive CLEC or ISP and every time you place an order there is a 50% chance that it will not go through anytime soon. Orders can take months. Imagine being a small company and having to deal with a situation that your major supplier may steal your customer even after you've taken the order. Imagine how much extra staff time you have to pay to handle these problems --- how many extra people, lost revenue, reputation, etc.
Predatory Pricing Not Discussed
Another issue from the CLEC perspective, not addressed in the report, is that the framework of pricing to competitors is predatory in almost all instances. MCI stated that in Massachusetts they would lose money on every order if they offered local phone service. (Declaration of Victoria Harper, Vice President and CFO of the MCI Group, FCC Docket CC No. 01-09, 4/25/01 at 15.)
"Because of Verizon's above-cost UNE rates (the phone rates for competitors), Worldcom cannot make a profit by offering local service in Massachusetts. To the contrary, Worldcom would lose money on every customer to whom it sold service. WorldCom has calculated that if it charged local customers the same rate that Verizon charges, the amount of money it would pay for UNEs would almost equal the amount it collects from the customer, without even accounting for the significant internal costs associated with billing, customer services, sales/acquisition costs, and bad debt. The negligible "gross margin" (after accounting for the high UNE costs and internal costs) would leave WorldCom (or any other CLEC) losing a substantial amount of money for each customer it served."
Other competitors have concurred. In fact, in the case of Massachusetts' entry into long distance, the Attorney General has appealed the FCC's decision to allow Verizon to enter long distance, claiming that the networks are not open, including the pricing of services to competitors.
In an NNI filing with the New York Attorney General's offices pertaining to the discounts for reselling Bell DSL, we demonstrate that the discount pricing to ISPs is also predatory. If an ISP offers the Bell DSL service, they will lose money on virtually every order. See: http://newnetworks.com/baadslscrewisp.htm
The Bells as CLECs: Another Fairytale.
Of course the Bell companies also said that they would be fierce competitors, going after their brethren. More of a joke then reality, SBC Communications in its purchase of the five-state Bell, Ameritech, stated that it would compete directly with its siblings. SBC claimed that once the merger was approved, the company would be in 50 major US Metros by mid-2002. Boston, Miami and Seattle were supposed to already be heavy with competition--- but once again the Bell companies' promises are nothing but a mirage. (See Appendix Two)
utcome: The Customer Is The Loser In This Battle.
On July 17th, a survey by the Yankee Group of Small and Medium sized businesses (SMB) found that the "CLECs are Delivering Better Service at Better Prices than the Incumbents", (press release, Yankee Group.)
This is no surprise. These smaller firms haven't lost sight of the customer's needs, and as a result, will deliver a higher-quality product. So, if this industry does not survive, then the entire telecom and tech sector is hurt, and the American public is left with no choice and a monopoly product with little innovation, cost savings, or quality customer service.
Additionally, a recent survey conducted by NetAction of customer satisfaction of DSL, (released 7/25/01) clearly showed that competitors have a smaller percentage of complaints as compared to the Bell company services.
"Broadband users who get service from competitive DSL providers or cable companies have a smaller percentage of complaints than DSL users served by the incumbent regional Bell monopolies, according to a NetAction report on consumer satisfaction."
Once again it is clear that customers will lose choice and better services if the Bell companies succeed in harming competition. To read the report:
In summary, the Crandall report doesn't cover the critical data or perform the proper analysis about the issues surrounding the monopolies' control over the CLEC business. It is nothing more than a self fulfilling work for the sponsors, who use it to convince reporters and regulators that the Bell companies have not done any harm to the competitors. Anyone reading this should not be fooled by the slick presentation. Just read some of the testimony of the CLECs and then decide which is more valid --- this report, or the testimony of the CLECs.
NOTE: The footnote for the first quote referenced our Boardwatch Magazine article ""The Bell Monopolies are Killing DSL, Broadband and Competition, Part One", 1/20/01 as the source of the author's belief that there are "some observers"... making claims "without providing any evidence". To read the article see: http://www.ispworld.com/bw/jan01/Tales_Baby_Bells.htm
Company Market Cap 52 Week Ticker ($M) Change Symbol
Adelphia Business Solutions
$480.7 -86.30% ABIZ Advanced Radio Telecom
$89.7 -94.10% ARTT Allegiance Telecom $2,130.0 -77.50% ALGX Allied Riser $157.6 -89.50% ARCC ChoiceOne Communications
$504.7 -61.60% CWON Convergent Communications
$30.6 -89.00% CONV CoreComm Ltd. $135.0 -94.40% COMM Covad Communications
$3449 -94.90% COVD CTC Communications
$300.7 -68.00% CPTL Cypress Communications
$53.0 -95.00% CYCO DSL.net $132 -93.40% DSLN e.spire Communications
$54.8 -92.40% ESPI Electric Lightwave
$212.4 -79.70% ELIX FiberNet Telecom
Group $137.7 -75.80% FTGX Focal Communications
$932.3 -65.20% FCOM General Communications
$390.0 +16.10% GNCMA ICG** $16.0 -98.00% ICGX Intermedia $855.1 -76.00% 10% ITC^DeltaCom $427.2 -80.10% ITCD Log On America $15.1 -91.30% LOAX McLeodUSA $7,946.0 -52.40% MCLD Mpower Communications
$327.8 -85.90% MPWR Net2000 Communications
$98.5 -63.29%* NTKK Network Access
Solutions $71.0 -95.10% NASC Network Plus $324.6 -85.10% NPLS NorthPoint Communications**
$79.0 -98.00% NPNT NTELOS $269.2 -46.50% NTLO Pac-West Telecom $169.6 -83.50% PACW RCN $756.8 -86.00% RCNC Rhythms
NetConnections $94.5 -97.00% RTHM Teligent $115.4 -97.70% TGNT Time Warner Telecom
$6,713 -06.70% TWTC US LEC $228.3 -77.00% CLEC USOL Holdings $23.3 -78.90% USOL Winstar $1,173.0 -73.50% WCII XO Communications $6,354.0 -66.90% XOXO Total Market Cap $35,247.60 % of loss $133,269.50 -79.43% Market Cap high. $168,517.10
Adelphia Business Solutions
Advanced Radio Telecom
FiberNet Telecom Group
Log On America
Network Access Solutions
Time Warner Telecom
Total Market Cap
% of loss
Market Cap high.
There are two reasons that there is no local competition today. The first is the documented harm to competitors and the second is the fact that SBC, the Bell company that owns three original Bells ---- Southwestern Bell, Ameritech and Pacific Telesis, as well as SNET, (Southern New England Telephone) never fulfilled their stated obligations to compete in 50 major cities by next year, including other parts of the country, and therefore other Bell companies. (See page 3 for a complete list.) In fact, by now, SBC was supposed to be competing in the Miami, Seattle and Washington. (St. Louis Post-Dispatch [2/5/99])
"SBC aims to expand to Boston, Miami, Seattle" "SBC Communications Inc., the No. 2 U.S. local phone company, said Thursday that Boston, Miami and Seattle will be the first three markets where it provides services as part of its plan to buy Ameritech Corp.
These plans were based on SBC's claim that they needed to merge with Ameritech, one of the original Bell companies, to give them more cash for the undertaking. The Fort Worth Star-Telegram [12/01/98]
"Stephen Carter, president of strategic markets, said the plan is contingent on regulatory approval for SBC's proposed $77.4 billion purchase of Ameritech Corp., expected to be completed in the middle of next year."
The merger went through in October 1999 and the first three cities were supposed to be competitive "within a year" of the deal going through. (St. Louis Post-Dispatch [2/5/99])
"The three cities named will be the first targets, with service available within a year of the purchase, SBC said."
The deal of course went through, yet SBC has yet to compete in any of the cities mentioned. Had SBC done this plan, the price for local service should have decreased because competition would have lowered prices
However, as we stated back in 1998, and we repeat today, we believe that SBC decided to pull a bait and switch --- they told the American public and regulators that they would give America competition in exchange for these mergers. Once the deal went through, they would claim that they could not go forward. They also knew that no regulator, including the FCC or any other group, would be able to or want to do anything about this. Any penalties would simply be the cost of doing business.
Will the FCC take action? According to the FCC merger condition SBC is to have 30 markets competitive within 30 months of signing --- October 1999. According to the FCC:
"21.Out-of-Territory Competitive Entry (National-Local Strategy) Within 30 months from the merger closing, SBC/Ameritech will enter at least 30 major markets outside of its region as a facilities-based competitive provider of local services to business and residential customers. "
However, the FCC did not take their own conditions seriously. Notice that there are penalties of $1.2 billion dollars if the company misses to enter the markets, but it is "voluntary".
"SBC/Ameritech is liable for voluntary incentive payments of nearly $1.2 billion dollars if it misses the entry requirements in all 30 markets. This condition will ensure that residential consumers and business customers outside of SBC/Ameritech's region benefit from increased facilities-based local competition."
And we all know that the Bell company will never pay anything, yet they will have been able to increase their own market dominance through the Ameritech merger. SBC once again played the American public for chumps.
Markets where the new SBC
plans to compete under the "National-Local"
strategy, ranked by size: Markets in which SBC and
Ameritech currently offer services, ranked by
size: 1. New York 1 Los Angeles (SBC) 2 Philadelphia 2 Chicago (AIT) 3. Boston 3 Detroit (AIT) 4. Washington 4. Dallas-Fort
Worth (SBC) 5. Miami-Ft.
Lauderdale 5.Houston (SBC) 6. Atlanta- 6 San Francisco (SBC) 7. Minneapolis-St.
Paul 7. San Diego (SBC) 8. Phoenix 8. St. Louis (SBC) 9. Baltimore 9. Cleveland (AIT) 10.
Seattle-Everett 10. San Jose (SBC) 11. Denver-Boulder 11.Kansas City (SBC) 12. Pittsburgh 12. Sacramento (SBC) 13. Tampa-St.
Petersburg 13. Milwaukee (AIT) 14. Portland 14. San Antonio. (SBC) 15. Cincinnati 15. Indianapolis (AIT) 16. Slat Lake
City-Ogden 16. Columbus, OH (AIT) 17. Orlando 17. Hartford/New
Britain (SBC) 18. Buffalo 18. Oklahoma City (SBC) 19 New Orleans 19.Austin (SBC) 20.
Nashville-Davidson 20.Dayton (AIT) 21. Memphis 22. Las Vegas 23. Norfolk -Virginia
Beach 24. Rochester 25. Greensboro -Winston
-Salem 26. Louisville 27. Birmingham 28. Honolulu 29. Providence
-Warwick 30. Albany -Schenectady -
Markets where the new SBC plans to compete under the "National-Local" strategy, ranked by size:
Markets in which SBC and Ameritech currently offer services, ranked by size:
1. New York
1 Los Angeles
4. Dallas-Fort Worth
5. Miami-Ft. Lauderdale
6 San Francisco
7. Minneapolis-St. Paul
7. San Diego
8. St. Louis
10. San Jose
13. Tampa-St. Petersburg
14. San Antonio.
16. Slat Lake City-Ogden
16. Columbus, OH
17. Hartford/New Britain
18. Oklahoma City
19 New Orleans
22. Las Vegas
23. Norfolk -Virginia Beach
25. Greensboro -Winston -Salem
29. Providence -Warwick
30. Albany -Schenectady - Troy