AT&T Looms Large, Again

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RENEE MONTAGNE, host:

Time now for business news.

If AT&T's move to buy BellSouth is approved, the $67 billion deal would create the nation's largest telecommunications company. Government regulators still have to decide whether the merger will undermine competition, something that concerns consumer groups.

Telecommunications Analyst Blair Levin is a former chief of staff at the Federal Communications Commission. He thinks the regulators will approve the deal.

Mr. BLAIR LEVIN (Telecommunications Analyst; Former Chief of Staff, FCC): The government will look at it and say that not only is there enough competition to allow the merger to proceed, but that there's going to be more competition in the future. The government is relying very heavily, I think, in its analysis on new forms of technology that will bring new competition to the market.

MONTAGNE: Technology is the driving force here.

Mr. LEVIN: I think it is and there really are two big changes from the time that AT&T was broken up. The first is wireless. There are now more wireless phones being used in America than wireline phones. Those phones have gotten cheaper and cheaper. That presents some form, not necessarily of direct competition, but it certainly puts constraint on price increases with local phones.

And then, secondly, is broadband. And broadband is an extraordinary phenomenon because it allows all kinds of new forms of competition. You have a company called Vonage, for example, which doesn't own a network yet offers a voice service to all broadband subscribers. And the government believes there's gonna be a lot of competition like that. And so, you don't have to worry about a large company, like you had to worry about the AT&T of the last century.

MONTAGNE: So, one has to really change one's way of looking at this. This company would be competing against more than just other phone companies.

Mr. LEVIN: Absolutely. And I think the competition comes in two directions: one is from folks who have their own network, like wireless providers, like potentially the satellite industry. And the second is from these new what you might think of as edge providers. Not only do you have companies like Vonage, but Yahoo! Microsoft, AOL, they're all offering ways of talking computer to computer. And in the future, that will be a kind of competitive dynamic in the marketplace.

MONTAGNE: Let's talk about regulatory issues involved here. Opponents might say of this merger that now this means they need to ask Congress to enact new laws in what's known as network neutrality.

Mr. LEVIN: Network neutrality is a huge issue. It raises the question: should there be any constraints on a network owner controlling the flow of information over their networks. In the early days of the Internet, by virtue of how the laws worked, the network owners had to treat all bids equally.

As we move to a network that's doing more high-bandwidth applications, such as video or online gaming, the network owners believe they've got to get more money to build out more effective networks to really carry this traffic. And they want to be able to give some bits priority over other bits. The question is should they be allowed to do that. They would argue that if they don't have the control to manage their networks like they want and strike deals for priority or whatever, they won't have the right incentives to build out better networks.

The opponents of say that if they can strike those kinds of deals, they will use that ability to grade competitors' service and really reshape the Internet, which has, to date, been kind of this fabulously democratic institution, small D. But I'm not saying that that's going to happen. That's what the fear is.

MONTAGNE: Blair Levin is a former chief of staff at the FCC who's now a telecommunications analyst at Stiefel, Nicholas & Company. Thanks very much.

Mr. LEVIN: Thank you.

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