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
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/Ameritechs 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
"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
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
"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.
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."
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. 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
And "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.".
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.
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.