Don’t bid adieu to the glory days of telecom monopolies just yet

BCE plans to buy Teleglobe Inc. BC Telecom and Telus merge. AT&T acquired Metronet. MCI Worldcom wants Sprint. And British wireless giant Vodafone PLC gobbles Mannesmann AG in a US$127-billion hostile bid. Faced with a two-year wave of mega-deals in the global telecom industry in which each acquisition eclipses the previous record-breaking merger, it's easy to get caught up in mythology. Looking at the price tag of each deal alone, it's tempting to use the label ‘unprecedented' for the latest block-buster. And, thinking only of the present, it's just as easy to be complacent about the industry's recently perceived passage from monopoly to competition. But woe to those who ignore history's teachings. Despite the frenetic pace of technological and corporate change, the history of the telecom sector reveals a repeating pattern, bolstering the adage that the more things change, the more they stay the same. The industry has, in fact, entered its third consolidation cycle since the invention of the electric telegraph more than 150 years ago in 1846. History also reveals that each cycle has seen the sector pass from open competition to monopoly - contrary to widespread belief that the industry's recent passage to open competition marks the end of a journey. Samuel Morse's invention of the telegraph spawned aggressive competition from dozens of entrants, who were gobbled up within 15 years by giants like Montreal Telegraph Co. and Western Union. The second cycle was ushered in two decades later by Alexander Graham Bell's invention of the telephone, which challenged the supremacy of the telegraph monopolies. AT&T used acquisitions and litigation to build its monopoly and Bell Canada neutralized its rival telegraph companies by 1891 and eliminated the threat from independent telcos within the next two decades. The current cycle, marked by the demise of the phone companies' monopolies over long distance and local telephony, began in the ‘60s. It took three decades, aided by the breakup of AT&T in 1984 and deregulation in many nations, to return to unfettered competition.Even telecom networks have passed through a repetitive cycle of sorts, according to author Thomas Standage, who referred to the telegraph as "the Victorian Internet." But the penchant of players to seek domination through mergers is as constant a feature of the industry as technological innovation. "Clearly, something about the communications business breeds concentration," stated Frances Cairncross in her 1997 book, The Death of Distance. Which leads us back to today - and to square the circle one more time. The massive restructuring wrought by the current consolidation phase is fuelled in part by the belief of corporate leaders in the maxim: eat or be eaten. Already, the ranks of the U.S. regional phone companies have been pruned to four from seven as they, too, seek greater scope. And Canada's 10 biggest phone companies have merged or allied themselves into two rival camps. "We needed to have scale," BCE boss Jean Monty said last year after the conglomerate sold a 20-per-cent stake in Bell Canada to U.S. phone company Ameritech Corp - now part of the SBC Communications Inc empire - for $5-billion. Monty's words echo the logic of Theodore Vail, the architect of AT&T's Bell System a century earlier. And it was Vail who, in 1910, best captured the sentiment that competition is, in fact, inimical to corporate self-interest: "Competition - effective, aggressive competition - means strife, industrial warfare; it means contention; it oftentimes means taking advantage of or resorting to any means that the conscience of the contestants or the degree of the enforcement of the laws will permit." As the cycle turns to the current phase of consolidation, however, the prospect of a handful of merged supercarriers emerging victorious raises the spectre of remonopolization - but on a global scale. That prospect should be feared by consumers, regulators and industry players alike. In fact, U.S. Federal Communications Commission chair William Kennard termed MCI WorldCom's bid for Sprint a "surrender" from "beneficial competition" by leaving two huge players - MCI WorldCom and AT&T - controlling 80 per cent of that market. Yet not even the might of that U.S. regulatory agency will be adequate to stem the tide of what is a global trend. Nor can we be sanguine that the rise of the Internet and the proliferation of new players eager to sell bandwidth on their own fibre-optic networks will be the salvation of competition. The fibre-fuelled availability of cheaper bandwidth will only stimulate consolidation further. Yet faced with the increased importance of the telecom sector as the enabler of the so-called Digital Economy, much more is at stake from sustainable competition than the viability of upstart firms or maintenance of cheap prices. Clearly it is time for governments to recognize that they must enact a global competition policy for the Information Age to thwart corporate instincts that tend toward monopoly. And the empowerment of a global institution, such as the United Nation's International Telecommunication Union, would be a critical first step. Lawrence Surtees is a telecom reporter with The Globe and Mail. He was editor of Network Letter from 1981 to 1983.

Don’t bid adieu to the glory days of telecom monopolies just yet

News | July 4, 2000

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