The telecoms strike back

Changes in the communications industry are spawning vast new choices - but not necessarily lower bills - for American consumers who dial, click, and channel surf.

Cellphones now carry video as well as voice. The Internet can be used for phone calls as well as data downloading. And television is fast becoming a digital medium, where content can be stored and retrieved anytime, not according to a schedule in "TV Guide."

This is the "digital convergence" of communication platforms that telecom and cable companies have long been trying to create. The process holds great promise but means more volatility for consumers and firms.

The latest jolt is this week's announcement by AT&T that it plans to acquire BellSouth Corp. Together, the firms would create the world's biggest telecommunications company in terms of market capitalization and combine many of the pieces of the old "Ma Bell" that in 1984 was broken into eight pieces by an antitrust settlement.

Indeed, for all the new competition, the scale of this $67 billion deal is just one sign of the market clout that telecom and cable companies still retain. The word monopoly no longer applies. But Americans are spending more than ever on communications services, and regulators still have a role to play as guardians of competition, consumer advocates say.

"The average consumer today wakes up with only two choices for full-service broadband communications, which is the future: the telephone company and the cable company," says Mark Cooper of the Consumer Federation of America in Washington. "What we've gone from is a regulated monopoly to an unregulated duopoly."

Other observers argue that, by and large, the marketplace is fulfilling its competitive promise.

What's clear to all, however, is that businesses are adapting quickly - with much of the focus for both companies and regulators now on how traditional phone companies will compete with cable TV providers in offering new services.

For their part, AT&T and BellSouth are positioning their planned merger as a win for consumers - and a way to go head to head with the cable industry.

"Together, we will lead the way into a new era of converged and bundled communications, video, and entertainment services," AT&T chairman Edward Whitacre said in a statement Sunday announcing the deal.

The companies would offer wireless service (through the Cingular brand), Internet, and traditional telephony with a dominant presence throughout the South and Midwest, and increasingly video services as well.

The pattern on prices varies from platform to platform.

"There's definitely some downward pressure" on prices for traditional phone service, thanks in part to new choices for making calls over the Internet, says Joe Laszlo, a senior analyst at Jupiter Research in New York. Wireless, too, is a "robustly competitive" market, he says, with customers paying less per minute as their usage continues to rise.

Online, the pattern is more subtle, with basic broadband rates steady even while special offers are pitched to new users.

Cable TV, many observers say, is an area where prices have tended to keep rising over the years, making that industry a source of particular scrutiny. One idea under review at the Federal Communications Commission: making companies offer "a la carte" services so customers can buy only the channels they want to watch.

Such plans might cut customer costs, some studies suggest.

But the overall trend is that communications of various sorts have been garnering a growing share of the time and money of the typical consumer. "I don't know how much further that can go," Mr. Laszlo says.

Some say companies will find themselves competing intensely for business.

But consumer advocates argue that regulatory vigilance remains much needed.

In particular, they contend the proposed AT&T-BellSouth merger is anticompetitive and will end up leading to higher prices, fewer choices and less innovation, just what the 1984 breakup of Ma Bell was supposed to prevent.

"They couldn't put Humpty Dumpty back together again, but they're putting Ma Bell back together again," says Edmund Mierzwinski, the consumer program director at US Public Interest Research Group in Washington.

He and other consumer advocates have pledged to fight the deal at the Justice Department, the Federal Trade Commission, and the FCC. They contend that while the merger will not create a monopoly situation for phone service, it will eventually lead to a duopoly with each phone giant controlling a series of services in different parts of the country.

"This one is about the future of communication writ large," Mr. Mierzwinski says. "It's not just about telephone service, it's about the Internet, the delivery of video and about all of the convergences that have been occurring."

Consumers can now watch TV on their cellphones, call a neighbor over their cable line, or hook up to the Internet over the phone lines. In that sense there is more choice. But it doesn't necessarily mean many choices of which company provides the services.

The upshot, some consumer advocates say, is a situation where prices have fallen on some services, but consumers often have to buy a bundle of services from the same company to get the best deals.

"If you're a consumer who can afford to spend $200 or $250 a month on communications services, then maybe your total costs have come down," says Jeannine Kenney, a Consumer's Union analyst in Washington. "The reality is now that competition is all about the bundle of services, and each company has a vested interest in maximizing sales of bundled services within their own territory."

The AT&T-BellSouth deal is hardly the first. AT&T already incorporates other former "Baby Bells" Ameritech and SBC. And consumer groups are keeping a close eye on whether past mergers are resulting in higher or lower prices.

Some consumer groups believe it's too soon to see the effects of mergers on long-distance services. For example, last fall, the Ohio Consumers' Counsel, a residential consumer advocate, argued against the SBC and AT&T merger unless the companies agreed to cap its basic rates for three years and cap the price of such features as call waiting and call forwarding.

"Most of the recommendations were not implemented and we believe residential customers are not getting their share of the benefits," says Ryan Lippe, a spokesman. "Consolidation often means fewer choices for customers."

In fact, Tuesday, the Public Utilities Commission of Ohio is expected to vote on changes of regulation for basic local phone service. "We could be seeing the potential for companies to increase their prices for just a dial tone," says Mr. Lippe. "If the proposed rules go into effect, a company like SBC could come in and become eligible to raise prices by as much as 20 percent per year."

However, it's not a given that a company will get a price hike, he adds. "We could still advocate for consumers."

• Staff writer Ron Scherer contributed to this report.