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| NEWSMAKER:WILLIAM KENNARD | |
 October 7, 1999 
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A merger between Ameritech and SBC has been approved by the FCC and a hundred billion dollar acquisition of Sprint by MCI WorldCom is pending. Ray Suarez and FCC Chairman William Kennard examine the changing telecom industry.
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RAY SUAREZ: This week, the mania for mergers in the telecommunications
industry has raced ahead, as has the role of the Federal Communications
Commission in Just yesterday, the FCC approved the merger of regional phone companies SBC Communications, and Ameritech Corporation, creating the nation's largest local phone service. SBC owns two other Baby Bells, Southwestern Bell and Pacific Telesis...meaning three of the original seven Bell operating companies are now under one umbrella. This newly combined company will now control nearly a third of the nation's local telephone lines. To ensure competition, the FCC placed 30 conditions on its approval
of the $70 billion deal, requiring the new company--among other things--to
provide discounts to |
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| Merger mania in the telecom industry | ||||||||||||||||||||
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RAY SUAREZ: And with me now is FCC Chairman William Kennard. Welcome
to the program. WILLIAM KENNARD: Thank you. RAY SUAREZ: Why does the merged WorldCom and Sprint have a burden to show that this merger benefits consumers? I thought all they had to show is that it doesn't reduce competition. WILLIAM KENNARD: No, that's not exactly right. Any parties that come before the FCC and propose a merger have to demonstrate why that merger is in the public interest and specifically how it will serve consumers. And when this deal came before us, we said what we had done in many cases and said that these parties bear a burden. Now, when MCI and WorldCom merged about a year ago, I indicated then that I was concerned about increasing consolidation in the long distance marketplace. So I believe they have a heavy burden to demonstrate that this merger will be pro-competitive and serve consumers.
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| The 1996 Telecommunications Act | ||||||||||||||||||||
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WILLIAM KENNARD: Well, I don't want to comment specifically on the
MCI-WorldCom-Sprint combination, because that, of course, is pending
before us. They'll have an opportunity to make their showing before
the agency. But as a general matter, we have to make sure that as this
industry restructures before our very eyes, that RAY SUAREZ: Has the 1996 Act provided that so far? For one example, cable rates have risen much faster than inflation every year since the Act was signed. WILLIAM KENNARD: Well, you know, this is not a monolithic marketplace, Ray. There have been some very, very tangible successes out of that Act. The wireless industry is a good example. We have a lot of competition in wireless. Consumers are paying 40 percent less for wireless services today than they were three years ago when the Act was signed into law. We have a lot of good competition in the long distance marketplace. Our challenge is really to focus on those areas where we still have entrenched monopolies. Local phone service is one area. Cable television is another, where you have dominant providers who still have not broken the back of those monopolies and introduced new competition. RAY SUAREZ: But here we are watching what's really happening after
the Act. Companies are saying, huge WILLIAM KENNARD: Well, again, you can't look at this market as one monolithic marketplace; it's many marketplaces, and it's changing dramatically. We are not going to go back to the days where we had just three broadcast networks and one national provider of telephone service. Those days are over. What I envision is a marketplace, a global marketplace, where you have a handful of national, indeed international, players, but lots of little niche players coming into the market and innovating. And we're seeing really good evidence of that today. For example, we have lots of choice in long distance. And you have a lot of new companies that have been born just in the wake of the '96 Act that are going in and providing data services and Internet services. So it's a very different and vibrant marketplace. And our challenge at the FCC is in the face of all these changes of technology in the law to keep this engine of competition going. |
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| Do mergers make for fairer competition? | ||||||||||||||||||||
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RAY SUAREZ: But if you are Frontier, if you are a Quest, to of the smaller long distance companies how do you compete when the larger companies are so exponential bigger than you are? WILLIAM KENNARD: Well, the two companies that you just mentioned have
been able to attract billions of dollars of capital just in the last
few years because they've been able to target niche markets and because
you have FCC policies that have allowed them to move in to formerly
monopoly markets and compete. One of the RAY SUAREZ: But one of the required counter deals, one of the things that they had to agree to in the SBC merger, was to move into new local markets. After the 1996 Act, local markets were now open to long distance carriers, and long distance markets were open to local carriers. To cynics, who look at this post '96 world, that's like telling a shark he has to eat fish all day. As part of the deal, you're telling them they have to do something that they might have done anyway. WILLIAM KENNARD: Well, that's not quite right, because in order for the local companies to get into long distance, they have to demonstrate that they have opened their markets to competition. But that's the biggest challenge we have today, is making sure that Americans in their homes have a choice in local residential phone service. And so before we can allow the local companies into long distance, the local companies have to demonstrate that they've opened their market. And we have worked very, very hard at the FCC to pry those markets open. That's really what the SBC-Ameritech merger is all about - using the power of that merger to pry open that local market to competition. RAY SUAREZ: You've long been on record as someone who does not want
this new frontier to resemble the old American economic scene, with
two nations, one of haves and one of have-nots. How does that intention
of yours play in with this tremendous - this tremendous |
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| Bringing the digital revolution to all | ||||||||||||||||||||
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WILLIAM KENNARD: Well, I have been - I've really devoted my chairmanship to making sure that this communications revolution is an inclusive one and that as we move into this wonderful digital future that nobody's left behind. So if you look at every major merger that the FCC has approved during my tenure, I have ensured that as a condition to these mergers that the companies roll out these wonderful advanced services to rural areas and to low-income areas. We did this in the context of the AT&T-TCI merger. We did it just yesterday in the context of the SBC-Ameritech merger. We did it in the MCI-WorldCom merger, because we have to make sure that this communications revolution serves all Americans. I've worked very, very hard with a program championed by Vice President Al Gore to bring computers into all our nation's classrooms. We've invested about $4 billion in two years in wiring our nation's schools and libraries, many of the poorest in most rural schools in the country. The future is bright, but only if we ensure that it's a rising tide and everybody is a part of this digital revolution. RAY SUAREZ: Is it more likely that minorities are going to be able to get into the game? WILLIAM KENNARD: Well, we have to keep working very hard on this, and
there's a lot of things that we're doing at the FCC. First of all, you
can't curse the darkness. The world is changing. We're not going to
go back to the world we lived in 20 years ago. We've got to make sure
that kids in minority communities and rural communities have access
to this technology so they can RAY SUAREZ: FCC Chairman William Kennard, thanks for being with us. WILLIAM KENNARD: Thank you. |
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regulating
that industry. Founded as the Federal Radio Commission in 1934, today's
FCC is responsible for overseeing radio, television and telephone companies.
And with the explosion of cable TV, mobile phones, and the Internet,
the FCC is now operating in a dramatically new world. In 1996, President
Clinton signed the Telecommunications Act, intended to spur competition
among the many companies vying for dominance. What's followed, however,
is a series of high profile mergers. Since the Act was signed, the FCC
has approved 29 major deals, and has not formally rejected any. 
competitors
for leasing part of its network-- to expand into 30 cities outside their
region to promote competition for local calls -- and to offer discounts
to low income customers. Also this week, the FCC was handed a new challenge,
when MCI-WorldCom, the nation's number two long distance company, announced
its bid for Sprint, the number three long distance carrier. MCI-WorldCom
is itself an example of the recent urge to merge. The Mississippi-based
WorldCom had gobbled up more than 60 companies before buying MCI and
CompuServe just last year, and now plans to take over Sprint. When the
deal was announced Tuesday, FCC Chairman William Kennard issued a strong
warning about this latest mega deal, saying, "How can this be good
for consumers? The parties will bear a heavy burden to show how consumers
will be better off."
RAY
SUAREZ: But here we are in a world where the FCC has signed off on,
following the other antitrust regulators and watchdogs, has signed off
on these huge deals that we talked about in the taped report. How can
you say no to any other big players that come down the road from here
on out?
consumers
are going to be benefited. We're moving into a really different world
in telecommunications today. Consumers are presented with an array of
new services and E-commerce and the Internet are really dramatically
changing our society, for the most part for the better. And we have
to make sure that that engine of competition and innovation keeps going.
And that's why we look at each of these transactions on their own terms
to make sure that we can identify specific benefits for consumers, more
services, lower rates, better communication service.
companies
are saying, we are too small to compete in this marketplace so the only
thing that we can do is get bigger, merge or die. The raising of the
table stakes in that way doesn't exactly encourage United States new
players to get in at the bottom end and become big. It's just impossible
for them.
things
that we have done - we did just yesterday in the context of the SBC
- Ameritech merger is to harness the powerful incentives of these large
companies to get together and use that as a lever to open the market.
That's why, as we saw earlier, we imposed a number of conditions to
make sure that as a condition of these companies getting bigger they
have to allow smaller, innovative companies access to those monopoly
markets, so that they too can compete.
