COLLECT CALLS

October 5, 1999
		MCI WorldCom has agreed to buy Sprint for $115 billion, making it the largest corporate takeover in history. After this background report, three experts look at what the merger will mean for the telecommunications industry.

Dec. 1, 1998: Viacom and CBS announce plans to merge. Nov. 26, 1998: The Justice Department investigates Visa and Mastercard. Nov. 24, 1998: AOL and Netscape merge Nov. 12, 1998: Federal prosecutors claim Microsoft has engaged in monopolistic business practices. May 26, 1998: Is the recent wave of mergers good for America? May 11, 1998: SBC and Ameritech join forces. May 7, 1998: Diamler Benz acquires Chrysler. April 13, 1998: A look at a series of big bank mergers.     MCI WorldCom Sprint	RAY SUAREZ: Joining me is Jeff Kagan, an independent telecommunications analyst based in Atlanta; Gene Kimmelman, co-director of the Washington Office of Consumers Union, a consumer advocacy organization; and Dennis Kneale, an executive editor at "Forbes" Magazine and former technology editor at the "Wall Street Journal." Dennis Kneale, let's start with you. Given the rhythm, the momentum of regulation in Washington currently, in the post-'96 Act era, is this deal even going to go through as written? Will these companies be able to marry in their current forms? DENNIS KNEALE: Based on what's happened since 1996, the automatic answer is yes, because no one in government, not at antitrust Justice Department, not at the FCC has yet stood up and said you can't do it, this is too big. Indeed when you have Exxon buying Mobile, it's archrival for $80 billion in the oil industry, how can you tell Telecom and tell them no? But this I've seen one thing different. I've watched every major deal happen for the last four years. This time the guys in Washington are beginning to rattle the sabers much earlier. And they actually might take a harder look at this and decide at what point is big just too big? I mean, you had three long distance companies, AT&T, MCI and Sprint had together collectively 90 percent of the market for years and years. And now WorldCom number four has bought MCI -- has now bought Sprint -- it will go up against AT&T. Why don't we merge them together and form one nice big company that can give a great bundle of services for everyone? At some point you have got to wonder when the regulators will say enough is enough.
	A hundred billion dollar acquisition
	RAY SUAREZ: Well, Jeff Kagan, in recent telephone deals, some of the players have had to shed certain properties, change their shape and size in order to merge. What does MCI WorldCom really want out of the Sprint empire? If it has to let some of the limbs go, is it really the wireless service they're looking for? JEFF KAGAN: Yeah. The most important piece of the puzzle for MCI WorldCom is going to be the wireless component, because they've got a very powerful story. They've got everything else except wireless. And we've all been saying that that's exactly what they needed. So if they had to shed everything else, the one piece that they'd want to keep is the wireless piece. But then again, you wouldn't want to pay $110 billion for just a wireless piece. But this is exactly the kind of move that WorldCom needs to make. And, frankly, Dennis, I agree with you that we're seeing a consolidation in this industry and yesterday I was concerned that we're taking one more competitor out of the long distance marketplace. But now that I've been talking to dozens of reporters and analysts today and rethinking some of the issues, realizing that if the long distance industry was the way it was, where the long distance companies only competed against other long distance companies, then taking one out of the mix would be a worry, would be a concern. But the long distance companies are competing with and preparing to compete against other companies, like eventually the Baby Bells. The Baby Bells aren't competing against them yet, but eventually they will. And cable companies -- cable companies are offering telephone service in many areas. And that's what AT&T is buying TCI and that's what they're intending to do. So I don't think it's as much of a concern. I think what we're seeing is a realigning of the marketplace, a reinvention of the marketplace. If we go out five years, we won't recognize this industry because the players are all positioning and reinventing themselves for the marketplace of the future. DENNIS KNEALE: I understand what you're saying but if I may step in here, I think a lot of us would clearly rather have a choice of Sprint as a separate company, even with the Baby Bells coming in. Sprint has sent several billion dollars in recent years hammering home that brand name. That has great value. And that pretty much disappears. RAY SUAREZ: Well, Gene Kimmelman, let me turn to you about what happens to the average consumer when it disappears.
	The cost to the average consumer
	GENE KIMMELMAN: It's a danger because we go from the three biggest companies that mass market advertise to consumers to two. Any time you lose choice like that it's a problem. For the majority of consumers, who are modest users of long distance, we have seen prices rise by more than $2 billion in the last two years, with new monthly fees, minimum charges on the bills. This will only make matters worse. We're pleased to see the chairman of the FCC say he will give it careful scrutiny. But the fact that there are dangers are truly the fault of the Chairman of the FCC, his colleagues in the Clinton-Gore administration that let every telephone company join together, six of the largest local monopolies joining into two, the three largest cable companies join together with AT&T. They sent the green light to all these companies to consolidate and merge. And so it's no surprise that we're now backed into a corner with the number two and three long distance companies trying to make a go of it. This is merger mania. RAY SUAREZ: But when Ma Bell was first broken up into the Baby Bells, the complaint among consumers was I don't understand this new world. It's bewildering to me. This isn't user friendly. I'm getting two bills where I used to get one. Can it also be that now consumers might be better served by bundling services that used to require two or three companies to - GENE KIMMELMAN: Everyone loves one-stop shopping for ease and simplicity. The problem is if it ends up being mostly one company offering the service, we end up with the same old bad deals that we had historically with a monopoly. Consumers want more choice, and bundling can be fine, but our problem is the local telephone market still is predominantly a monopoly. The cable market is still predominantly a monopoly. And in long distance, if you're not a big volume customer, you see your prices going up. Losing these players is an enormous setback for consumers. At least Sprint and MCI were trying to challenge each other in the marketplace. Now, they've joined together. We're not sure if the smaller players coming in can make up for that lost.
	Competition in a global market
	RAY SUAREZ: Well, Dennis Kneale, MCI is known as a company as an aggressive cost cutter. And I'm wondering about the people in Kansas City and municipalities that have ponied up millions of dollars in incentive and infrastructure support and various kinds of inducements to keep Sprint anchored in that part of the world, the thousands of members of the Communications Union who work for Sprint, should they be worried about this? DENNIS KNEALE: Well, the union has already come out against this, and I imagine they are worried about this. From a consumer standpoint, we do need to remember something -- bigness alone isn't bad. So far the consolidation that has gone on in the market in telecom has meant cheaper prices. Yes, there's been monthly fees imposed, but AT&T a month ago cut its prices 30 percent. WorldCom and - by the way -- MCI, that name, is kind of disappearing from the corporate parent name. It's now going to be known as WorldCom. I'm thinking the Sprint guys must have said "We don't want MCI's name in the title, we just can't stand that." WorldCom can make this benefit consumers if it wants it to be that way. It will have the power, and the strength and the clout and the market scale to do that. Bigness alone doesn't mean consumers won't benefit; they will benefit. We will have a bundle, a choice of them. I'm kind of interested to see whether consumers really truly want it all on one bill. That can be every bit as confusing as getting three nice little separate envelopes every month that I now get for long distance, local and cellular. RAY SUAREZ: Jeff Kagan, you've been telling to us look to the future. When we look to that future, could WorldCom make the point to the United States Government that, hey, we're not really competing in the United States, the world's largest single long distance market. We're a world company that has to worry about BT in Britain and Seaman's in Germany and on and on and on. JEFF KAGAN: Well, clearly that's the argument and that's the plan. That's what they're building to prepare for. And that's what we're seeing with other mergers like SBC and Ameritech - you know -- and Bell Atlantic and GTE. That's companies that are positioning themselves to compete in the new marketplace. I was listening to Gene. And, you know, frankly, I agree that we need to be concerned about keeping choice, keeping competition vibrant in the marketplace but I guess I'm not as concerned about this merger because I don't see it harming competition. I think if we listen, you know, Steven Covey has something he says "you start with the end in mind." And if we start with the end game in mind here and think about what will the telecommunication business be like in five years, or ten years, I think we're going to wind up with four or five very large players offering everything to everybody, and several hundred smaller players filling in the gaps that they don't pay attention to. We'll end up with an AT&T and a WorldCom; we'll end up with an SBC and a Bell Atlantic. Maybe we'll end up with -- maybe the fifth player will be a Bell South-Quest-U.S. West combination. They'll be marketing to the power users, the customers that are spending money on bundles and the business customers. And we'll have choice because we'll have choice of those four or five companies. Plus we'll have several hundred smaller providers that will be offering service who will be picking up the crumbs that will fall off because off the table because the larger providers won't be offering service in every locality, they might not be offering service to the smallest of users, you know, the two or three or $5 a month customer but the smaller providers will.
	Has long distance gotten cheaper?
	RAY SUAREZ: Let me jump in right there, because with the time we have left, I want to hear if Gene Kimmelman can live peacefully in that world that Jeff Kagan just created for it. GENE KIMMELMAN: We're not saying bigness is bad, but consumers don't buy their phone service and cable service in Great Britain and Germany; they buy it here. And the consolidation has not led to lower prices. Prices are going up for the majority of consumers. Cable rates are through the roof. Consolidation didn't do anything to help that. So Jeff Kagan is right, the bigger users may get some benefits, but what about the majority of people who are more modest users? They deserve choice too, or they deserve the government to make sure they get a fair shake. And that's not happening right now. JEFF KAGAN: But, Gene, how is dropping long distance rates...and I agree with you in essence, I'm not really arguing your point, but how do you argue that dropping long distance rates to 5 and 7 cents a minute is an increase in price? GENE KIMMELMAN: When you add a $5.95/$4.95 charge or $1.95 for some of these plans and the average consumer is calling about one hour a month, do the math, it turns out to an effective rate of 15/20/25 cents a minute. That is not a price reduction. JEFF KAGAN: Then that consumer doesn't have to buy it. GENE KIMMELMAN: These people have seen their rates go up. JEFF KAGAN: I think the smallest customers that spent $2, $3, $5 a month are the ones that are paying the highest price. They are paying the 25 cents a minute because it doesn't pay for them to pay for a monthly service charge. But then again the customers that are paying $3, or $4, or $5 a month for the most part don't spend enough to care.
	A school yard simile to mergers
	RAY SUAREZ: Well, we have time for - go ahead - DENNIS KNEALE: If I could interject - RAY SUAREZ: Quickly. DENNIS KNEALE: I love that global argument. I mean, that's like the bully in your elementary school when he's beating you up every day for your lunch money but - you know -- he's really not a bully on the scale of the entire school system, he's only a bully out there on your playground. And Telecom, like politics, is strictly local. RAY SUAREZ: Dennis Kneale, thanks for being with us. Gene Kimmelman, Jeff Kagan, thanks to you as well.