Commentary: Verizon, other Baby Bell companies trying to stop growth

Daily Record, The (Baltimore), Jan 9, 2004 by H. Russell Frisby Jr.

First, the good news: The recent growth of competition in residential phone service has created a $9 billion annual windfall for consumers. That's how much consumers are poised to save as they break free from the old Baby Bell monopoly.

Now the bad news: Verizon and the other Bell companies have quietly been shoring up support for an underhanded plan to bring this savings to a screeching halt.

According to the Los Angeles Times, which recently broke the story, in late October, executives from Verizon, SBC and BellSouth convened a secret meeting of about a dozen telecom CEOs in Washington, D.C. They invited CEOs representing suppliers of telecom equipment, most of whom sell to the Bells and their competition.

According to the Times, here's where things get really interesting. Verizon and its brother Bells tried to coax these companies into funding a $40 million lobbying campaign that would directly undercut the ability of Maryland to promote phone competition. As a result, it would also undercut other phone companies, which are customers of the suppliers.

These supplier companies would fund the plan with a portion of their overall revenues. But not to worry: The Bells have for years emphasized that if there are fewer competitors selling phone service, their profits would rise. They would, in turn, be in a position to purchase supplies from favored companies.

One possible translation: We buy your products now. We'll decide whether to buy more - or less - of your products in the future, once we see how much money you give back to us so we can undercut the growth of phone competition in Maryland.

And as the Times put it, the result of a successful campaign would be to raise prices.

This action is, at best, sneaky, and is perhaps a lot worse. It also raises some disturbing questions. Consider the legality: Did the Bell companies' invitation to these companies - over whom the Bells hold enormous economic power - to ante up for a $40 million lobbying campaign violate anti-trust laws?

Until the meeting notes are made public, there is not enough information to answer definitively. But as U.S. Rep. John Conyers, the senior Democrat in charge of anti-trust enforcement, said when the news broke, this meeting requires an investigation to assess the facts and determine whether it crosses the line.

There are other legal concerns. For example, the Bell companies, with their cartel-like operations and billions in profits, are a crucial market for many of these struggling suppliers. As the Consumer Federation of America asked, What happens if a vendor doesn't ante up? Do they [Verizon and the other Bells] withhold business?

When all is said and done, there are so many lawyers in Washington that the Bells may have been able to stay on the right side of the law. Barely.

But from a consumer perspective, this secret plan looks suspiciously like a kick-back scheme to wreck the growing choices for phone service in states like Maryland.

H. Russell Frisby Jr. is CEO of the CompTel/ASCENT Alliance.