Antitrust as leverage

I mostly yawned at the announcements several months back that AT&T and MCI would be acquired by incumbent local phone companies SBC and Verizon. The long-distance telephone industry, which is what AT&T and MCI used to represent, is dead. It was created out of whole cloth by the AT&T divestiture in the 1980s. A combination of regulation and technology have since destroyed the notion that carrying telephone calls over long distances between central offices is a stand-alone business.

The industry AT&T and MCI thought they were getting into, competitive local exchange service, has also largely disappeared. The 1996 Telecom Act was designed to facilitate competition in local telephone markets, but for a variety of reasons, most of the competitive efforts were spectacular failures. Local competition is finally happening, in the form of mobile phones and cable VOIP, but that doesn’t help AT&T and MCI.

So, other than the loss of effective pro-competitive policy advocates in Washington, DC, I wasn’t all that concerned about the effects of the two mergers. Now, however, it looks as though the deals may be the catalyst for a significant pro-competitive development in US telecom policy.

Reportedly, the FCC is considering requirng the merged companies to offer “naked DSL as part of its antitrust review. This means that the phone companies could not require customers to purchase their voice telephone service in order to get broadband Internet access. Although some telcos, such as Qwest, voluntarily offer naked DSL, most insist that customers buy voice service even if they don’t actually use it. The FCC, on its recent deregulatory course, hasn’t seemed particularly interested in barring this practice.

Allowing naked DSL won’t change the competitive landscape much today, but down the road it could be extraordinarily significant. For VOIP and other broadband applications to reach their full potential, customers must have the opportunity to choose which voice services they wish to use.

If antitrust review is the lever that makes naked DSL happen, that’s fine with me.