With consolidation becoming the order of the day among major telecommunications companies, it’s time to take a look at the effect these mergers are having on different aspects of the industry.
While mergers and acquisitions directly impact the players themselves, let’s not forget the impact of these corporate milestones on the consumer. Executives of some of the principal telecommunications companies seemed to feel that prominent mergers which had taken place between companies such as AT&T and SBC, Nextel and Sprint, Verizon and MCI and AT&T and Cingular were likely to benefit the consumer.
Conflicting Views. The general feeling was that as a result of these mergers there would be fewer companies in the market, a fact that would give rise to intensified competition. The efficiency of market players would be enhanced and they would be able to extend an improved quality of service.
However, the views of the Consumers’ Union were somewhat different. Consumers felt that the increasing incidence of mergers between companies was compromising the customer’s right to a wider range of choices and reduced rates for both domestic and long distance wireless services. They also felt that the new trend towards consolidation was obstructing the development of the market for the newer Internet based applications into the market.
Consumers also voiced their concerns to the effect that mergers were actually killing competition in the field of telecommunications. They claimed that the majority of Americans had suffered in terms of receiving higher bills, limited choices and deterioration in the quality of service. They felt that this was directly related to the move towards consolidation in the industry that has taken place over the last few years.
A few examples. Let’s take a look at what exactly happened. There was a time when AT&T and MCI held price of place as the leading service providers in the telecommunications industry. However, as a result of a number of factors creating volatility in the market, AT&T is now being taken over by SBC Communications. Similarly, MCI is being acquired by Verizon Communications, while Nextel is being acquired by acquired by SprintAT&T and MCI were unable to cope with changes in the market for long distance communications. An earlier initiative of AT&T to acquire SBC was squashed by the FCC as absurd. The FCC similarly stood in the way of MCI’s plans to take over Sprint.
Since then, there have been a number of changes in the fortunes of both AT&T and MCI in the market. Their conventional business of providing long distance services has been invaded by local carriers. This was the result of the implementation of the Telecommunications Act introduced by the FCC in 1996.
The provisions of the Act enabled local carriers to secure between 20% and 30% of business relating to long distance communications. The deal also allowed long distance companies to enter the market for local communications. However, this did not work out well, as these companies were not able to adopt a suitable approach to draw local clients.
Financially also local carriers were at a disadvantage because they found that the amount they had to pay for local access made it difficult for them to compete with the rates extended by the local carriers.
Changing times. Apart from all this, new innovations on the Internet provided new prospects for long distance communications. One of these was VoIP, which stifled the market for conventional services. Despite the fact that both MCI and AT&T upgraded their networks to extend these services, they were not able to compete with the services being offered by new vendors such as Vonage and Level 3 Communications.
To make matters worse, cable operators have recently entered the market for long distance services. As a result of offering a variety of services including local and long distance communications, cable television and high speed Internet, cable operators now have a firm hold on the telecommunications market.
As a consequence of all these developments, AT&T and MCI have found that their customer bases have become much smaller and revenues have also fallen considerably. In the case of AT&T, revenues have dropped from about $ 50 billion in 1999 to around $ 30 billion by 2004. The number of residential customers dropped from 60 million to 24 million during the same time frame. Likewise, MCI’s revenue in the first quarter of 2005 was 12% lower than corresponding figures for 2004.
AT&T’s attempts to save the situation by expanding the range of its services did not have the desired effect. In addition, the company did not have an effective leadership to carry it forward. MCI was taken over by WorldCom, and resurfaced as MCI after Worldcom collapsed. However, the company has lost its hold on the market.
Even so, it is entirely possible for both AT&T and MCI to attain some degree of stability and better prospects for the future by merging their operations. The move could work for them in much the same way as it did for Verizon and SBC. These two companies are financially in a strong position. They are now pushing for top spot in the country.
There is some speculation and skepticism about the question of mergers seeing improved profitability. This could be made possible if companies were to reduce expenditure by removing unnecessary departments. While SBC proposes to reduce its workforce by 13,000, Verizon has yet to make its intentions clear.
However, it is expected that the mergers will be put through the scanner by the Department of Justice and the FCC. Such mergers must be endorsed by state level watchdogs, which could be a lengthy process, taking anywhere between one and two years.
One company that has had a considerable impact on developments in wireless and wireline network engineering is Glow Networks (www.glownetworks.com).. The company was founded by Dr. Jay Srinivasan and has specialized in this field. Glow Networks is headquartered in Richardson, Texas, has a presence in India as well as other countries in the Far East. Glow Networks has also been active in Canada.
