- The Washington Times - Wednesday, May 11, 2005

Q: My telephone service provider is being acquired by another company that doesn’t serve my area. What’s going to happen to my service?

A: Customers of AT&T; Corp., MCI Inc. and Sprint Corp. might be wondering what’s in store now that the three providers are slated to combine with other companies that don’t serve the entire country. AT&T; is being bought by SBC Communications Inc., the dominant local phone company in the West and Midwest. MCI is being taken over by Verizon Communications Inc., which dominates the Northeast and Mid-Atlantic. And Sprint is merging with cell phone carrier Nextel Communications Inc.

A major focus in all three deals is corporate customers, who are far more profitable to serve than residential customers. This is particularly true with the acquisitions of AT&T; and MCI, which will deliver millions of corporate accounts to SBC and Verizon, both of whom have struggled to compete for such clients.

At the same time, the new SBC, Verizon and Sprint Nextel will inherit tens of millions of residential subscribers.

Even before they announced their respective deals, AT&T;, MCI and Sprint had mostly stopped advertising to the consumer market. That’s because profit margins have been hit hard by price wars and rising costs, particularly the money they pay to connect calls over local phone lines owned by the likes of SBC and Verizon.

So if market conditions are so rough, what better time to pull the plug than under new management?

Well, although brand names may or may not change, it appears that AT&T;, MCI and Sprint customers need not fear any sudden halt in service for some time. Still, it’s hard to predict what will become of traditional long distance over the next few years, given the ongoing crimp on profits from the spread of unlimited national calling on cell phones and voice-over-Internet phone services.

SBC spokesman Michael Coe told the Associated Press the company “plans to continue serving AT&T;’s consumer customer base — in region and out of region — after the merger closes.” This includes AT&T; local customers served over phone lines leased from SBC rivals such as Verizon, BellSouth Corp. and Qwest Communications International Inc., Mr. Coe said.

Verizon declined to comment on its plans, citing legal restrictions on public statements before an acquisition is approved by the government. But there’s little indication it would not seek to retain MCI’s residential customers just because they are located in non-Verizon territory.

As part of the Nextel deal, Sprint is spinning off its local phone business, which owns and operates about 7.6 million direct lines to homes and businesses. But while the focus of the merged company will be wireless access to end users, Sprint Nextel is keeping Sprint’s long-distance network and its traditional customers, as well as those it provides with local service by leasing lines from other companies.

AT&T;, MCI and Sprint still collectively serve more than 35 million homes as either long-distance provider or local and long-distance provider. And many consumers are still contacting these companies on their own to sign up for service.

AT&T;, which had 22.7 million residential customers at the end of March, recently said it has been receiving 200,000 of these unsolicited calls per month. MCI, with about 13 million residential customers, and Sprint are not turning away “walk-in” customers either.

Despite these sign-ups, the lack of advertising has fueled a rapid overall decline in customers. AT&T; saw its residential customer base fall by 1.3 million in the first three months of the year.

Still, both SBC and Verizon will inherit plenty of consumer accounts by the time their acquisitions close, presumably early next year.

Many of those customers live outside their traditional service areas, so SBC and Verizon would need to pay other local phone companies, including each other, for access to these homes.

While this means those customers may be less profitable to serve, they do in most cases generate some profit, so that’s one reason why SBC and Verizon would be motivated to continue serving them.

ASSOCIATED PRESS

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