Is the MCI-Sprint Merger Anti-Competitive?

The proposed merger between MCI WorldCom and Sprint obviously raises important antitrust questions, since the devouring of the country’s third-largest long-distance player by the second-largest might very well not be in the best interests of consumers. You don’t hear people saying “Why did they ever break up AT&T?” much anymore, and that’s mainly because the fierce competition for long-distance customers has driven prices inexorably down. Eliminating a key player in that market could reduce the pressure for price cuts.

It could reduce the pressure, but it probably won’t. Although the telecom industry on the one hand is succumbing to merger-mania, on the other hand it’s seeing new players spring up regularly, and it’s now seeing wannabes such as RCN and Qwest becoming real contenders. And in the simplest sense, having two big players in the market is not meaningfully different from having three. The days when companies happily divided up market share like the Portuguese and Spanish divided up the world in the 16th century are long gone, if they ever existed. If AT&T raises my rates above the current 7 cents a minute, I’ll be happy to move.

Still, one effect of an MCI WorldCom/Sprint merger would be to increase the pressure on regulators to allow the Regional Bell Operating Companies (RBOCs) to offer long-distance service. For a Baby Bell to be able to offer long-distance to its customers, it first has to demonstrate that it has opened the market for local service to competitors, which means not only that it isn’t blowing up its competitors’ vans but that it’s giving its competitors reliable access to that last mile of copper wire that runs into our homes, and that it isn’t making customers jump through hoops when they want to change phone companies.

Up to this point, no Baby Bell has actually been able to demonstrate this–rather than welcoming competition, the RBOCs have tried to repel it at every turn. This is not surprising. Everyone wants the markets they’re not allowed into–long-distance, in this case–to be open, and the markets they dominate to be closed. But it has been a frustrating spectacle. Changing local service should be as easy as changing your long-distance carrier, and as risk-free.

In any case, Bell Atlantic now has an application to provide long-distance service before the FCC, and indications are that it has a good chance of being approved. The company has undergone close scrutiny, has performed a battery of tests to show that it’s being fair to its competitors, and has lost enough customers–though still a tiny fraction of the overall number–to its competitors to suggest that it doesn’t have a complete monopoly. And if Bell Atlantic can start providing long distance, that will put added competitive pressure on AT&T and MCI WorldCom.

Eventually, then, Bell Atlantic will be a full-service phone company, and that will probably be a good thing in the long run. But before the FCC says yes, I’d like it to make Bell Atlantic answer one question: Why does it cost me more to call Long Island from my home in Brooklyn than it costs me to call Paris?