Liar, Liar, SBC's Pants on Fire:

Break Up SBC-Ameritech

  Liar, Liar, SBC's Pants on Fire ----Where's the Competition?
TeleTruth Requests Immediate Congressional and FCC Investigations of SBC-Ameritech Merger--- Payments of $1.2 Billion and Break-up the Merger.

The Telecommunications Act of 1996 was created to spawn local phone competition that would lower prices, give customers choices and bring in a new era of broadband services. However, today, six years after the act was put into place, less than 5% of residential customers are using a competitive local service.

There are two reasons that there is no local competition today. The first is the documented harm the Bell companies have caused competitors and the lack of enforcement by the Federal Communications Commission. The entire competitive local phone market is on life-support and literally hundreds of companies have been put out of business.

The second major reason there is no competition today is the fact that SBC, the Bell company that merged and owns three of the original Bells---- Southwestern Bell, Ameritech and Pacific Telesis, (as well as SNET, Southern New England Telephone) never fulfilled their obligations to compete in 30 major cities outside their own region by April 2002.

As part of the SBC's agreement to merge with Ameritech, the company proposed a 'National-Local Strategy", and stated that they would be competing with all of its siblings by April 2002. As the FCC wrote, the benefits would be competition nationwide --- and the vision was that the ALL of the Bells would be competing with each other.

"This will ensure that residential consumers and business customers outside of SBC/Ameritech’s territory benefit from facilities-based competitive service by a major incumbent LEC. This condition effectively requires SBC and Ameritech to redeem their promise that their merger will form the basis for a new, powerful, truly nationwide multi-purpose competitive telecommunications carrier. We also anticipate that this condition will stimulate competitive entry into the SBC/Ameritech region by the affected incumbent LECs."

Why else would the FCC and the government want the monopoly to become larger and more able to harm competitors?

The conditions were a tradeoff. In exchange for allowing these huge Bell companies to become larger, SBC pledged to be competing in 30 cities outside their region 30 months after the agreement went through. 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. "

If these conditions are not met, then SBC is required to pay penalties of $1.2 billion (The term voluntary can be interpreted to mean the company made these commitments of their own volition.)

"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."

In fact, SBC was supposed to be competing in Miami, Seattle and Washington within a year of the signing of this agreement. (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."

"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 vigorous way, in any of the cities mentioned. Had SBC done this plan, the price for customers' local service should have decreased because competition would have lowered prices.

Why Congress Should Get Involved.
From our perspective, this is proof that the Bell's promises are essentially worthless. Currently, as Congress debates the pros and cons of new legislation, commonly known as "Tauzin-Dingell", to 'free-the-Bells" it is obvious that the Bells will not deliver on any stated promises they may make in the press.

The Bells "gamed": the system ---- Our analysis is 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 for some reason. 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.
Thirdly, Congress needs to find out what happened to these promises -- and have the Bells make retribution for misleading the American public. We include:

a) SBC paying all of the fines for failure to roll out competition
b) Breaking up the merger.

The Bells will argue that they have fulfilled their obligations. However, our reading of the merger conditions is that the Bells are in violation of both the spirit of the agreement, as well as failing to fulfill the basic conditions in any state. This includes:

"…offering service, whether by resale, unbundled elements or facilities, to all business and all residential customers within the entire service area of the incumbent RBOC or Tier 1 incumbent LEC in the market)"

And the penalties? The conditions state that they owe $100,000 a day for missed entries, $1.2 billion for missing the entry in all 30 markets.

"…make voluntary incentive payments to a state-designated fund (or as governed by state law) in the amount of $110,000 per day for each missed entry requirement, for a total of $1.1 million per entry requirement per market. SBC/Ameritech would therefore be obligated to pay $39.6 million if it missed all 36 entry requirements in a market, or nearly $1.2 billion for missing the entry requirements in all 30 markets. The Applicants’ implementation schedule requires the combined firm to enter Boston, Miami and Seattle within 12 months after the merger closing, an additional 12 markets within 18 months of closing, and all 30 markets by the later of 30 months."

Liar, Liar, SBC Claims it Rolled Out Competition in 22 States.

Everyone living in New York, Seattle, Miami, Boston, or Washington DC probably never heard that SBC offers competitive local phone services to customers. In New York, there are no adds in the newspapers nor even in the yellow pages for SBC competitive local phone services.

And yet, SBC states that it introduced service in 22 new markets outside their region (From SBC, 10K 2001 Annual Report) and therefore has fulfilled its obligations.

"As of December 31, 2001 we had introduced service in 22 new markets (Boston, Fort Lauderdale, Miami,New York, Seattle, Atlanta, Denver, Minneapolis, Philadelphia, Phoenix, Baltimore, Bergen-Passaic,Middlesex, Nassau, Newark, Orlando, Salt Lake City, Tampa, Washington D.C., West Palm Beach, Louisville and Charlotte), and plan to enter at least eight more by April 2002. In March of 2001, we scaled back our service offerings in these areas in response to certain economic environment and regulatory factors, while still fulfilling our FCC merger condition requirements."

We also find in the Annual Report that SBC hasn't spent virtually any money in 2001 or even 2000 to fulfill its obligations. SBC states that they "decreased approximately $90 million in 2001".

"Costs associated with our national expansion initiative decreased approximately $90 (million) in 2001, reflecting the initiative’s scaleback, compared to an increase of $300 (million) in 2000."

In total contrast, SBC spent $320 (million) and $260 (million) in 2001 and 2002 for entry into only four states to offer Long Distance.

"InterLATA long distance service expenses increased by approximately $320 (million) in 2001 compared to $260 (million) in 2000 primarily reflecting our entry into four new states."

Therefore, it is clear that SBC never intended to actually create a competitive environment in ANY state outside its region and never put up adequate dollars to even try. The company spent a great deal more to enter long distance than it ever did on bringing competition to other markets.

What Was Impact of This Merger on Ameritech Customers? --- Worsening Customer Services, Less Investment In The Ameritech Region.

The consensus about the merger in the Ameritech region seems to be that there has been a steady decline in services throughout the region since SBC took over. According to a letter from the FCC's Common Carrier Bureau to SBC at the end of 2000, it is clear that service in the Ameritech region declined.(Letter From FCC TO SBC, DA 00- 2298, October 6, 2000)

"In particular, I am concerned that SBC's performance data indicates that consumers in SBC's region are experiencing increasing installation delays, longer repair times, and greater difficulties contacting SBC's incumbent LECs about service quality and other issues. I note also that consumer complaints regarding service quality have increased in recent months in spite of SBC's explicit commitment when the merger was pending to devote greater resources to service quality after the merger closed."

The Michigan Alliance for Competitive Telecommunications released a large report showing that SBC Ameritech has slashed investments in the state (July 24, 2001)

"A new report compiled with data filed at the Federal Communications Commission by SBC/Ameritech, Michigan's largest local phone monopoly, shows how the giant megacorporation has betrayed Michigan by failing to invest in the state over the last decade, resulting in poor service and antiquated phone systems that have blocked competition and limited development of broadband internet service in Michigan.

"The report, "Promises Made, Promises Broken: How Ameritech Took Advantage Of Deregulation In Michigan During The 1990s," shows that SBC/Ameritech's Michigan operations have consistently ranked at the bottom of the nation in terms of expenditures per access line, a key investment criteria, and that the company laid off nearly a third of its workers during the decade."

In Ohio, the story is the same -- SBC let customer service fall to unacceptable levels. DSL Prime's story "Ohio orders SBC to deploy DSL: Customer benefits in lieu of massive fines for poor service" . Feb 2, 2002

"Chairman Alan Schriber is a former economics professor appointed by Republican Governor Taft, not a corporate basher. An independent audit of SBC/Ameritech service was devastating. "Ameritech eventually admitted that it had not provided an acceptable level of service to its customers" the order concludes. "Ameritech improperly categorized over 100,000 service troubles," many of which should have resulted in customer credits. 30 or 40% of the time, SBC service reps did not even minimally comply with the state rules, partially because SBC's call centers are so disorganized even the company could not determine where many Ohio customer's calls went, much less that they were handled properly."

More recently, an industry newsletter "The Front Lines" by the Heinlein Group (Vol. 2, Issue 4, Feb. 25, 2002) discussed how penalties are currently being put on SBC from all of the Ameritech states.

"ILLINOIS, INDIANA, MICHIGAN, OHIO, AND WISCONSIN FINE AMERITECH OVER $1 MILLION ---Ameritech will be fined over $1 million in penalties and service credits by state regulators throughout its region for failure to comply with SBC-Ameritech merger service quality conditions during the month of November 2001."

And in California, Pac Bell, the other merged Bell with SBC, was found to have overcharged customers $350 million dollars. This headline and opening from the California Public Service Commission says it all. (CPUC, February 21, 2002, PUC18)

"INDEPENDENT AUDIT FINDS PACIFIC BELL OWES RATEPAYERS ALMOST $350 MILLION…The California Public Utilities Commission (PUC) today released the results of a comprehensive independent audit of Pacific Bell that recommends customer refunds of almost $350 million."

"Hoexter's Broadband Bits", an insider's newsletter clearly shows how SBC keeps paying fines --- a total of $53 million for the last year, but these fines mean nothing to SBC. It's cheaper than offering quality services to competitors. (Hoexter's Broadband Bits" - Issue #99, for the week ending December 28, 2001)

"Last week, SBC paid the federal government $1.95 million in fines for failing to meet wholesale performance targets that were set upon SBC's acquisition of Ameritech in 1999. The missed targets relate to SBC's promise to provide competitors timely access to its networks. These fines raised the company's total fines to $53.5 million over the past 12 months. As we have noted throughout this year, as long as the cost of violating merger agreements are below the cost of allowing competitors to enter the market, it continues to be cheaper to pay the government for violating certain performance targets versus completely opening up the local markets to competitors." 

What Will the FCC Do?

Will the FCC assess SBC for damages and other fees for lying to the American Public? Will the FCC make them American Public whole? The American phone customer was supposed to receive the benefits of these mergers through competition and lower prices.

More importantly, the FCC is currently considering a series of dockets about deregulating the Bells and have let them into long distance services in multiple states, even though the Bells failure to roll out competition was evident over the last year with Miami, Seattle and Boston never seeing a true competitive market.

If the FCC was aware of these competitive failings, then allowing them into new services should have been postponed until their other obligations were fully acted on.

We believe that there should be public hearings and a complete investigation by the FCC and all other new services and deregulatory matters be held accountable to this competitive failure.
The FCC has the authority to break up the merger. --- According to the merger agreement, the FCC has the power to break up this merger.

"360. We expect that SBC/Ameritech will implement each of these conditions in full, in good faith and in a reasonable manner to ensure that all telecommunications carriers and the public are able to obtain the full benefits of these conditions. If SBC/Ameritech does not fulfill its obligation to perform each of the conditions, pursuant to our public interest mandate under the Communications Act we must ensure that the merger remains beneficial to the public. We intend to utilize every available enforcement mechanism, including, if necessary, revocation of the merged firm's section 214 authority, to ensure compliance with these conditions. To this end, should the merged entity systematically fail to meet its obligations, we can and will revoke relevant licenses, or require the divestiture of SBC/Ameritech into the current SBC and Ameritech companies. Although such action would clearly be a last resort, it is one that would have to be taken if there is no other means for ensuring that the merger, on balance, benefits the public.". (emphasis added)

If the FCC is considering the public interest, then it is clear that the merger should be dissolved because the conditions within the Ameritech has reached unacceptable levels of harm.

In Conclusion:

Congress should investigate, require SBC to pay $1.2 billion and break-up this merger. SBC has missed virtually every commitment and has totally given up on competing with its siblings. And SBC knows that the penalties it will pay are nothing more than the costs of doing business. It is time for Congress to investigate these failed commitments and make it clear to SBC --- We Won't be Fooled Again.

It is also clear that this merger has had a detrimental effect on the entire Ameritech Region. We believe that SBC should be required to divest Ameritech (and possibly Pac Bell and SNET) from their holdings.