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August 1, 2005

            On July 26, Inner City Press attended the NYS Public Service Commission’s public hearing on the proposed mergers of Verizon and MCI, and SBC and AT&T.   ICP came with testimony (which is below).   But what was surprising was that those testifying were singing Verizon’s praises for grants it has given, to the Brooklyn Academy of Music and other programs. Very little was said about the impact on consumers or competition of these telecommunications mega-mergers. It was similar, in this way, to public hearings on bank mergers, held by the Federal Reserve and, here, the New York Banking Department. But even at these, some of the testimony is about the merger, or the companies’ record.  At least for the portion attended by ICP, it was sing-for-supper from Verizon...


            Good afternoon.  This is testimony on behalf of Inner City Press / Community on the Move (ICP).  While our organization is usually more active in raising consumer protection issues in connection with the mergers of banks, we also have concerns about telecommunications mergers such as those currently proposed.  In fact, ICP was among those who publicly questioned WorldCom’s acquisition of MCI in 1998 (as well as opposing, including to the NYS Public Service Commission, WorldCom MCI’s application in 2000 to acquire Sprint). ICP has also previously commented on applications by AT&T (to acquire Teleport) and SBC (to acquire SNET in Connecticut). See, e.g., Reuters newswire of January 5, 1998, "Groups Oppose WorldCom, MCI Deal," and Communications Today, May 7, 1998, "SBC, SNET Defend Merger to FCC."

            Our organization is opposed to both of these proposed mergers.  As noted in the PSC staff’s white paper, the Verizon - MCI proposal stands to have a more direct impact on competition in New York State, at least as measured by the HHI Index.  But there are issues on AT&T / SBC, as well, that must be addressed.  Our organization, based in the South Bronx and active in similar areas, sees redlining by banks and insurance companies followed by electronic redlining, the so-called digital divide.  The record of the two applicants, Verizon and SBC, is problematic in this regard.

            Take for example Verizon, already accused of electronic redlining. See, e.g., “Verizon's target area for service questioned,” Boston Globe of February 9, 2005:

Verizon Communications Inc. yesterday added four more overwhelmingly white, mostly well-off Boston suburbs to the Massachusetts communities where it is deploying an advanced fiber-optic network that can deliver cable television.... Affluent Wellesley and Westwood, along with more middle-class Canton and Dedham, bring to 24 the number of Boston-area suburbs where Verizon has confirmed it is building its so-called FiOS service. Of the 24, three-quarters rank among the 50 wealthiest Bay State cities and towns, according to the 2000 US Census. In 17 of the 24 communities, non-Latino whites make up 90 percent or more of the population, compared to an overall state average of 82 percent, Census data also show. In contrast, Verizon has yet to reveal plans to install FiOS service in Boston neighborhoods. Verizon spokesman Jack Hoey said ... the work is easier in suburbs than cities because virtually all construction happens overhead, without the need to pull cables from underground or dig up streets. "We can move a lot faster on the poles than we can underground," Hoey said. Also, Verizon is still working out ways to feasibly install fiber-optic connections inside apartments and multi-tenant dwellings, which are much more common in cities than in suburbs that have mostly single-family and two-family homes. But Verizon is also deliberately beginning to market services where it sees the best chance to make money. "It's really a combination of two things," Hoey said. "One is on the demand side. Where are there good markets? The other is efficiency and the cost of deploying," which generally is lower in the suburbs, Hoey added... Elsewhere in the country, who gets next-generation service, and when, sometimes gets controversial. SBC Communications Inc. has been denounced for "digital discrimination" in video rollouts...

    Despite this record, Verizon is among those problematizing the proposals by cities like Philadelphia to bridge the digital divide by providing free WiFi services.  The Financial Times has quoted Verizon spokesman Eric Rabe that “broadband networks are too complex for a city with no experience in this field. ‘It is a complex system that requires periodic upgrades.’”  FT of June 3, 2005, “High-speed internet access for all? Not so fast.”

  Similar issues have arisen in Chicago, regarding SBC and its so-called “Lightspeed” services. SBC’s response was to point to, as at today’s hearing, its charitable contributions. But that’s not the issue. The issues including other telecom services, and including SBC.  See, e.g., National Journal’s Technology Daily of May 18, 2005, regarding Congressional questioning of both companies for

“bypassing low-income and inner-city neighborhoods in their initial rollouts of new television and high-speed broadband offerings that will compete head-on with cable-delivered services... SBC also was criticized for an investor relations presentation to Wall Street that said the company would initially focus on ‘high value’ customers.”

            These issues must be addressed.  Several of the applicants here have troubling managerial issues, including related to discrimination. See, e.g., NY Daily News of April 18, 2005, “VERIZON IGNORED HER HARASS CLAIM,” regarding a lawsuit by a woman employed “laying fiberoptic cable in the Bronx for Verizon's Empire City Subway subsidiary.” Regarding MCI, see, e.g., Pacific Daily News of December 21, 2004, “Terminations related to race.”

            A combination of Verizon and MCI would harm consumers by reducing competition, including in New York. Click here For the Media

Some earlier Inner City Press reports:

July 13, 2000:  Finally, WorldCom and Sprint have called off their anticompetitive merger (see the comments ICP filed with the FCC, below).   You may wish to visit the following "Stop WorldCom-Sprint" site....

February 22, 2000

   On February 17, ICP filed with the FCC a petition to deny the MCI WorldCom - Sprint merger application   ICP’s protest focuses on the anticompetitive effects the proposed merger would have on the long-distance and Internet backbone product markets. ICP has also urged the FCC to consider how the companies and their merger affect the “digital divide.” A summary follows.

Internet backbone: With one-third of all Internet Service Provider connections, MCI WorldCom is far-and-away the largest provide of Internet backbone services in the United States. Sprint is second-largest, with a 10% market share. By one estimate, the combined companies would be as largest as the next eleven Internet backbone providers combined. See Backbone Market Share, Boardwatch Magazine’s Directory of ISPs (11th ed. 1999).

   When Worldcom acquired MCI in 1998, Sprint, a Joint Petitioner here, urged the FCC to “require as a condition of the WorldCom/MCI merger, that the merging parties spin off either WorldCom’s or MCI’s Internet assets.” (Sprint’s Comments to FCC, March 13, 1998; see also Sprint’s press release of March 4, 1998).

    On December 15, 1999, the FCC asked Worldcom for more information on how the proposed merger would affect the Internet backbone market, since (as here), Worldcom’s application included virtually no information on this issue. The FCC's required public interest review must include this issue, on which the current record is woefully inadequate. Worldcom’s CEO on January 12 said that “the wireless thing is not the only thing we wanted. It was a primary component. But, if we had to sell off the rest, the tax problem -- from any accounting perspective -- would be much more than we could live with.” Radio Comm. Report, Jan. 17, 2000. Observers have interpreted this as indicative of Worldcom’s position that it would refuse to make divestitures in this case. Id. In that event, the merger should be denied.

Long-Distance: MCI WorldCom is currently #2, and Sprint is #3, in the long-distance product market. The companies’ own application to the NYS PSC recites that Worldcom’s share of the national long distance market is 25.6%, and that Sprint’s share is 10.5%. Significantly, the New York market is even more highly concentrated than the “nationwide” market, with the top three players controlling over 84% of the market. Allowing two of these three players to combine would injure competition, and consumers.

    The FCC's Chairman issued a statement, on October 5, 1999, that:

Competition has produced a price war in the long distance market. This merger appears to be a surrender. How can this be good for consumers? This parties will bear a heavy burden to show how consumers would be better off.

--Statement of FCC Chariman William E. Kennard on Proposed Merger of MCI WorldCom, Inc. and Sprint Corp., FCC News, October 5, 1999

    Nothing since October 5, 1999 -- least of all the Application, and the Joint Applicants’ public statements, some of which are recited infra -- has changed the injury to competition, and to consumers, that this proposal portends. As noted by one informed observer, “[r]educing the number of... players in long-distance cannot be cured by a[ny] divestiture of assets.” Telephony, December 20, 1999.

Digital Divide: As MCI WorldCom and Sprint have built-out their fiber optic networks, they have avoided communities of color -- ICP, along with other groups, raised this during the PSC’s and FCC’s review of the WorldCom - MCI merger in 1998. At that time, WorldCom represented to the FCC that “low-income and minority communities located in and around these city centers are well positioned to receive the benefits of local competition from MCI WorldCom. MCI and WorldCom are eager to expand their combined networks and provide service to residences and businesses at all socioeconomic levels.” (Second Joint Reply of WorldCom, Inc. and MCI Communications Corp., FCC Docket No. 97-211, at 93, filed March 20, 1998). It does not appear that these “benefits” have arrived, since the MCI WorldCom merger; ICP has asked the FCC to allow it to take discovery on this issue, and to hold an evidentiary hearing.

         Earlier, on February 4, ICP filed a timely protest to MCI WorldCom’s application to acquire Sprint, to the New York State Public Service Commission.    The NYS PSC confirmed receipt of ICP’s protest on February 4. This will be updated as circumstances warrant.

    Until then, for or with further information, contact us.

* * * *

   Under the First Amendment to the U.S. Constitution, we have freedom of the press, and of communications -- but only if you can afford them. These are issues that low income communities can and should work on. ICP is trying, in (for now) these three fields: broadcast (radio and television);  telephone; and the Internet (opposing electronic redlining, see below).

Broadcast:  Until the Reagan administration, U.S. law had the “fairness doctrine,” that mandated that different points of view be heard. After this doctrine’s elimination, there remain only weak encouragements for “public service” by broadcasters, and fair employment requirements that are now also under attack.

    TV and radio stations are re-licensed by the Federal Communications Commission every eight years. At that time, the public can comment, on whether or not the stations (which are given monopolies for the particular frequencies at which they broadcast) are serving the public interest, and are fair in their employment practices. These requirements are also considered when broadcast companies apply to merge or expand.

   In 1997, ICP challenged Chancellor Broadcasting’s applications to acquire radio stations from Viacom, based on the stations’ presumptively discriminatory employment practices, and the monopoly they would have in radio in and around New York. After months of responses and replies, the companies settled with ICP, making commitments to improve their employment practices, air public service announcements about issue of concern in the South Bronx and Harlem, and to offer reduced rate advertising to small businesses in these areas, to off-set their anticompetitive control of this market. Here's a link to an FCC Order reciting some of this; see also, Reuters newswire of March 28, 1997, "Consumer Group Withdraws Evergreen Protest;" Dallas Morning News, May 29, 1997, at 2D, "Area Firms to Expand Minority Efforts;" and New York Daily News, May 29, 1997, "Complaints Heard."

   ICP is looking closely at other broadcast companies, and would happily speak and work with grassroots communities interested in doing the same.

Telecommunications:  The cusp of the millennium has seen a spate of telecommunications mergers: Bell Atlantic and NYNEX, SBC and PacTel and Ameritech, WorldCom and MCI, AT&T and Teleport. These mergers raise consumer issues as to both telephone and Internet access and pricing. WorldCom and MCI, whose merger ICP and others, including the Communications Workers of America and the Rainbow Coalition, protested, were required to sell off part of their Internet backbone holdings. Here's a link to a New York State Public Service Commission Order in the midst of this battle.  See also, Reuters newswire of January 5, 1998, "Groups Oppose WorldCom, MCI Deal," and Communications Today, May 7, 1998, "SBC, SNET Defend Merger to FCC."

   Bell Atlantic and SBC are periodically required to open their markets to competition, but do so only half-heartedly. Perhaps most important for the future, the independent, high tech companies like Teleport, who are running high speed communication wire networks and then selling out to the Baby Bells, have been excluding low income and minority neighborhoods with this new technology.

Internet / Electronic Redlining:  The concept of “electronic redlining” is coming to the fore, but decisions as to the new systems are being made before any legal protections are put in place. This is an issue that ICP has raised repeatedly to the FCC and certain state communications regulators. For now, the only protection these agencies cite is the loose concept of “universal service,” and the new federal “E-Fund.” Universal service is the concept under which most of the country was wired for telephone. Telephone was (correctly) viewed as something of a necessity, and so the Bells were prohibited from charging excessive fees in rural and other high cost areas. Now, for the Internet, the federal government has proposed subsidizing rates, to public libraries, schools, and health facilities. The telecom companies don’t want to pay for this; the Republicans in Congress are attacking both the idea, and the agency formed to implement it.

   A good source of information on these E-Fund, universal service and other telecommunications issue is the Benton Foundation, which puts out a daily e-mail summary. Contact them at http://www.benton.org/.

   In April 1999, MCI-Worldcom was sued for not allowing the use of calling cards to make long distance calls in South Central Los Angeles and other communities of color, purportedly because of the greater existence of “fraud” in these communities. Darren Haylock, visiting his parents in South Central, tried to call relatives in Belize using his MCI calling card. His call was blocked; the operator told him it was because he was calling from an area with a “high level of fraud.” When Mr. Haylock later called from the suburban San Fernando Valley, his call went through without problem. His class action lawsuit followed. MCI-Worldcom refuses to list the areas it blocks calls from. This will be updated as the lawsuit proceeds.

Updated May 10, 1999, re Congress moving to streamline FCC merger reviews...

Updated April 19, 1999, re Internet redlining legislative proposals    Further analysis below on this page.

May 10, 1999 -- The Senate Judiciary antitrust subcommittee, doing the bidding of the ever-larger telecom conglomerates, on May 6 unanimously approved a bill imposing time limits on the Federal Communications Commission’s review of mergers. Subcommittee chairman Mike Dewine, Republican of Ohio, said “the FCC is taking too long to review mergers. [Businesses] need certainty so that they can carry out their long-term strategies.” What Sen. Dewine apparently meant is that the FCC is taking too long to APPROVE mergers. The “certainty” that the monopolizing applicants want is for approval; and that is the message that the Senate is sending to the FCC.

    The irony is that the FCC usually waits for the Department of Justice to act, and thereby can use the information collected and developed by the DOJ. If the FCC must act faster, it will have to do its own detailed inquiry into the competitive effects of mergers, possibly creating more burdens on applicants. The FCC is required to consider more than antitrust -- it must rule on a broader “public interest” standard. While the FCC has approved virtually all mergers, it appears that the Republicans are moving toward stripping the FCC of its “public interest” jurisdiction. Public interest be damned -- “businesses need certainty.” The bill now passed to the full Senate Judiciary Committee, and then to the Senate floor. If the Senate Republicans actions on S. 900, the financial modernization bill that rolls back the Community Reinvestment Act, is any guide, this pro-monopoly bill will glide through the Senate, with the Democrats capitulating as well. Ma Bell, fuse once against with your children, without any restrictions on pricing. Developing...

* * *

 April 19, 1999 -- Senators McCain (R-AZ), Hollings (D-SC), Rockefeller (D-WV) and Burns (R-MT) have stated they will push for legislation directing federal regulators to determine whether people living in rural and poor urban areas fall victim to electronic redlining when cable and telephone companies deploy high-speed Internet service. See Hollywood Reporter of April 14, 1999.

    For an existing model to combat the roots of electronic redlining, visit the Community Technology Center - Net, at <http://www.ctcnet.org>.

* * * *

   For activists in low income communities interesting in working on this issue, give the Inner City Public Interest Law Center a call, at (718) 716-3540, and we’ll see what can be done.

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