When Qwest Communications made its "secret" $6.23 billion bid for MCI in early February, the Denver Post dredged up a 1950s file photo of a 4-foot-2-inch boy in an ill-fitting suit gallantly asking a 5-foot-9-inch girl to dance. The implication was, with attractive beaux like Verizon waiting in the wings, why look at Qwest?
Sure enough, MCI leapt at Verizon's $5.3 billion Valentine's Day offer, not even acknowledging Qwest's suit, leaving the poor incumbent carrier to linger sadly by the punch bowl. Pundits pointed out Qwest's continued burden of $17.2 billion in debt and wondered if there was anyone left to dance with, either as acquirer or acquiree. What few mentioned is how unattractive most of the remaining wallflowers were.
In truth, this mad scramble for partners is due to an absence of healthy broadband service providers. Is this what the authors of the 1996 Telco Reform Act intended? The law was designed to foster competition at higher layers, allowing newcomer carriers to share physical networks and offer specialized services in a condition of competitive pricing. But Internet Protocol and Ethernet served as a double whammy of commodity service, driving lowball pricing all the way up to the application layer of the protocol stack.
A year ago, former Bellcore pundit Robert Lucky warned of voice-over-IP pricing as the canary in the coal mine, providing an example of what happens when a "free lunch" mentality reigns in service provision. Enjoy those free IP voice calls while you can, Lucky said, because there will soon be no mechanism by which carriers can make money.
If the trend of SBC-AT&T and Verizon-MCI continues to play out, there will soon be a single broadband service supplier in each geographical region, a return to a balkanized version of the 1970s-era AT&T. Low prices for data, voice and video may be attractive in the short term, but the long-term trend for 21st-century service may be worse customer service than ever before, with no one willing to continue to upgrade the network infrastructure, from physical to IP layer. The implications for every manufacturer in the supply chain are obvious and ominous.
Market analysts will probably nod their heads after the Verizon-MCI deal is consummated, insisting they always anticipated another round of consolidation. More mergers were inevitable, perhaps, but was this what they had in mind?
By Loring Wirbel, Communications editorial director for EE Times and its network publications.