The move out of neutral

13 Mar 2006

AT&T's acquisition of BellSouth commands our attention in Asia for a number of reasons.

Sheer size for one. The likelihood of further consolidation in US telecom and cable, for another.

It also makes us reflect on the whole deregulation experience. The US pioneered telecom deregulation by allowing competition in long-distance in the 1980s.

That is now the status quo, but the idea of local access monopolies has, for good reasons, not traveled at all. The new new AT&T now comprises four of the original eight Bell companies that were formed from the break-up 22 years ago.

This deal, should it go ahead, marks the death of that regime. We now see that competition in the access market comes first from infrastructure - cable and wireless - and second from new service providers: MVNOs, VoIP players like Vonage and P2P firms like Skype and Yahoo.

The strength of the newly-merged carrier will be its convergence capability - the ability to offer connectivity over every kind of network to service every kind of customer.

The weakness is that the combination of two big companies doing the same thing doesn't necessarily make for one better company. HP and Compaq, for example.

The real unknown is regulatory. While the current Washington election season makes forecasting hazardous, it seems likely that this deal will be approved on similar terms as SBC's acquisition of AT&T last year.

That's the small part. The big pending regulatory decision is on 'network neutrality' - the longstanding mandatory single charging tier for all traffic carried on a network. AT&T and some other CLECs are asking the FCC to end net neutrality so they can charge portals for traffic carried over their networks.

AT&T chairman Ed Whitacre has been the most vocal, winning the nickname 'my pipes' for his dig at Internet companies like Yahoo and Google. 'Why should they be allowed to use my pipes‾' he said.

Like other telco CEOs, Whitacre has been contemplating the prospect of evaporating voice revenues while his IP backbone fills up with video content charged at all-you-can-eat rates.

What he wants is a two-tier Internet - premium and best effort. Google and Yahoo et al are naturally opposed, as are US consumer groups.

US Congress is looking at the issue now, and doubtless the election cycle will also have an impact on the outcome.

Some in the industry think that the next-gen networks now being built by tier-one carriers will enable them to dictate how they charge ISPs.

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