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S. HRG. 109–34

SBC/AT&T AND VERIZON/MCI MERGERS—

REMAKING THE TELECOMMUNICATIONS INDUSTRY

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MARCH 15, 2005

Serial No. J–109–8

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ARLEN SPECTER, Pennsylvania, Chairman 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

DAVID BROG, Staff Director 

MICHAEL O’NEILL, Chief Counsel 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas, prepared 

statement .............................................................................................................. 52

Cornyn, Hon. John, a U.S. Senator from the State of Texas ............................... 5

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio ................................ 3

Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin ....................... 4

prepared statement .......................................................................................... 81

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared 

statement .............................................................................................................. 83

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 1

WITNESSES 

Capellas, Michael D., Chairman and Chief Executive Officer, MCI, Inc., 

Ashburn, Virginia ................................................................................................. 11

Dorman, David, Chairman and Chief Executive Officer, AT&T Corp., 

Bedminster, New Jersey ...................................................................................... 9

Seidenberg, Ivan, Chairman and Chief Executive Officer, Verizon Communications, Inc., New York, New York ................................................................. 8

Whitacre, Edward E., Jr., Chairman and Chief Executive Officer, SBC Communications, Inc., San Antonio, Texas ............................................................... 6

QUESTIONS AND ANSWERS 

Responses of Michael Capellas to questions submitted by Senator Kohl ........... 26

Responses of David Dorman to questions submitted by Senator Kohl ............... 30

Responses of Ivan Seidenberg to questions submitted by Senator Kohl ............. 33

Responses of Edward Whitacre to questions submitted by Senators Coburn, 

Schumer, and Kohl ............................................................................................... 41

SUBMISSIONS FOR THE RECORD 

Capellas, Michael D., Chairman and Chief Executive Officer, MCI, Inc., 

Ashburn, Virginia, prepared statement ............................................................. 55

Dorman, David, Chairman and Chief Executive Officer, AT&T Corp., 

Bedminster, New Jersey, prepared statement ................................................... 66

Office of the Ohio Consumers’ Counsel, Janine L. Migden-Ostrander, Consumers Counsel, Columbus, Ohio, letter ............................................................ 85

Seidenberg, Ivan, Chairman and Chief Executive Officer, Verizon Communications, Inc., New York, New York, prepared statement .............................. 89

Whitacre, Edward E., Jr., Chairman and Chief Executive Officer, SBC Communications, Inc., San Antonio, Texas, prepared statement and attachments ..................................................................................................................... 93

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SBC/AT&T AND VERIZON/MCI MERGERS—REMAKING THE TELECOMMUNICATIONS INDUSTRY 

TUESDAY, MARCH 15, 2005

UNITED STATES SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:30 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Arlen Specter, 

Chairman of the Committee, presiding. 

Present: Senators Specter, Hatch, DeWine, Cornyn, Coburn, and 

Kohl. 

OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. 

SENATOR FROM THE STATE OF PENNSYLVANIA 

Chairman SPECTER. The hearing on the telecommunications industry by the Judiciary Committee will now commence, the hour 

of 2:30 having arrived. 

Today, like virtually everyday in the Senate, is complicated because we are taking up the budget, a scheduling turn which was 

not known when this hearing was set. There are five votes scheduled at three o’clock, so we will proceed as best we can and have 

to recess during the course of the votes. It is not a very unusual 

problem for our hearings and we will just do the best we can. 

This full Committee hearing was set in order to give all of the 

members of the Judiciary Committee an opportunity to participate 

and raise questions about this very, very important subject. Customarily, it is a matter left in the hands of the Subcommittee on 

Antitrust, and after making an opening statement I will turn the 

gavel over to Senator DeWine, who is the Chairman of the Subcommittee on Antitrust, and to the ranking member, Senator Kohl. 

But I did want to begin the session because of the importance of 

the subject. 

There is no doubt that mergers and acquisitions are sweeping 

America in so many, many industries. The communications mergers are vitally affecting very basic service for almost all American 

consumers, and the question which we have to answer is whether 

there will be sufficient competition for consumer protection. 

A very lengthy statement which I have will be made a part of 

the record without being read in order to economize on time and 

I will make just a few brief introductory comments. 

In January, SBC Communications, one of the Baby Bells, announced plans to acquire AT&T. Shortly thereafter, Verizon ComVerDate 0ct 09 2002 10:44 Jun 06, 2005 Jkt 021393 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\21393.TXT SJUD4 PsN: CMORC
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munications, a successor to three Baby Bells, announced plans to 

acquire MCI. Another Baby Bell, Qwest, also is bidding to acquire 

MCI. SBC, Verizon and Qwest all provide local wire line phone 

service to primarily residential and small businesses. Verizon and 

SBC also have become major wireless providers. MCI and AT&T 

continue to provide long-distance services. 

These mergers will reunite local phone service providers and 

long-distance companies. In the meantime, new competitors—cable 

companies, wireless providers, voice over Internet providers—have 

come to compete without distinguishing between local and long-distance service. 

There are a number of important questions which the Committee 

and Subcommittee will want to address. Are the other modes of 

communication sufficient to put competitive pressure on the 

merged companies? Second, will the merged companies and other 

wireless companies be able to use their infrastructure to prevent 

cable and voice over Internet companies from competing? Even if 

they have access to the infrastructure, will cable companies, independent wireless and voice over Internet providers be strong 

enough to keep prices of residential and small businesses low? 

There has always been a concern since the founding days of the 

Republic about the size of corporate America. Justice Brandeis expressed it succinctly in Liggett v. Lee way back in 1933 when he 

said, quote, ‘‘The general laws which have long embodied severe restrictions upon size and upon the scope of corporate activity were 

in part an expression for the desire for equality of opportunity.’’ A 

little later in the opinion he really gets tough, saying, quote, ‘‘Such 

is the Frankenstein monster which has been created by their corporation laws.’’ Going back to Jefferson, the warning was about, 

quote, ‘‘banks and corporations will grow up around the people and 

will deprive them of their property.’’ 

We do not live in the time of Jefferson and we do not even live 

in the time of Brandeis, but we have to be concerned about the tremendous acquisition of power and be sure that consumers are adequately protected. 

Shortly after I was elected to the Senate in 1980, the Antitrust 

Subcommittee held a hearing and Assistant Attorney General Baxter came in. And as is the way with Senate hearings, soon there 

was just a witness and a Senator, and I had a fascinating experience, fascinating for me, to be able to question the Assistant Attorney General on Antitrust for about two hours. Nobody else was interested. I think it is a record which was unlistened to and unread. 

But that was in the era when AT&T and Ma Bell and all the 

Baby Bells were dismantled, a decision that gave me a lot of 

qualms when it happened. And now we are here back with a reconfiguration of a lot of moving parts. So these are big, big issues and 

we want to take a look at them to see if they make sense for America, for continued growth and opportunity and jobs, and if they adequately protect the American consumer. 

Let me yield at this time to my distinguished colleague, Senator 

DeWine, who is Chairman of the Subcommittee. 

3

STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM 

THE STATE OF OHIO 

Senator DEWINE. Mr. Chairman, thank you very much for your 

good statement and for holding this hearing to examine these 

mergers. These deals have received really an unusual reception in 

the press and within the industry, an unusually friendly reception 

and one that I am not really sure is wholly deserved. In fact, one 

might normally expect that mergers worth $23 billion, combining 

four of the country’s leading phone companies, would raise great 

concern among those who follow the industry. 

But recent changes in the telecommunications industry have 

given an air of inevitability to these deals. Market pressures and 

regulatory changes have significantly limited the options of the 

long-distance carriers, so that AT&T has already announced that 

it is exiting the market for residential service, and MCI appears 

headed in the same direction. Under these circumstances, it is not 

surprising that many have done a quick analysis and concluded 

that these deals do not pose any significant antitrust concerns. 

However, Mr. Chairman, a quick analysis, whatever the outcome, 

is really not enough and is not adequate. In fact, I think that certainly there are some antitrust issues that require more thorough 

examination. Perhaps the most obvious area of concern is the socalled enterprise market, that sector of the market comprised of 

large businesses with sophisticated telecommunications needs. In 

this market sector, all four of the merging parties currently compete, and so competition there will be affected by these deals. 

There are also questions regarding the impact of these deals on the 

markets for long-haul capacity and the market for Internet backbone. These are all areas that we should explore today. 

Even beyond these specific market evaluations, however, is the 

larger competition issue. Certainly, these mergers represent a loss 

of competition among the phone companies, but the remaining 

players will tell us that competition is flourishing via different platforms, specifically that we will have cable companies, wireless companies and companies that provide voice over IP services. In other 

words, so-called intermodal competition will protect competition in 

these markets. This, I believe, is the key issue—the broader competition issue that this Committee must examine most thoroughly 

and must consider as the most obvious candidate for Committee action. 

For one thing, we must keep in mind that intermodal competition, by definition, does not always provide the type of direct competition that we are used to seeing. Wire line, wireless, cable—

these services are inherently different, much like planes, trains and 

automobiles, all of which provide a similar service, but in different 

ways, with different pluses and minuses. Not all will always provide sufficient competitive benefits for all consumers. 

Further, in this context, we must discuss today whether or not 

conditions are required in order to ensure that multiple modes of 

competition are, in fact, available. For example, voice over IP is a 

very promising product, but is not in and of itself a separate facilities-based form of competition. Instead, it is a type of service that 

is only available to a consumer if he or she has broadband access, 

and currently that access is only available from the phone company 

4

or the cable company. In order for voice over IP to be a legitimate 

competitor to the merged companies, must we require the phone 

companies to sell DSL separately? These are important questions 

and we must begin asking them today. 

On a final note, Mr. Chairman, as you know, only the four merging companies are represented here today. While we anticipate that 

this hearing will provide the Committee with a good base of knowledge regarding the deals, we all agree that we cannot responsibly 

conclude our examination without hearing directly from those who 

are critical of these deals. 

Accordingly, with the consent of the Chairman and the full Committee, on April 19 Senator Kohl and I are planning to hold a follow-up hearing in the Antitrust Subcommittee with a panel of noncompany witnesses who have expressed concerns about these mergers. That hearing, which will be essentially part two of today’s 

hearing, will help us to more fully examine these mergers and explore the competitive impacts. 

I thank the Chair. 

Chairman SPECTER. Thank you very much, Senator DeWine. 

Senator Kohl. 

STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 

STATE OF WISCONSIN 

Senator KOHL. Thank you, Senator Specter. 

We are witnessing the most fundamental reshaping of the 

telecom industry in decades. In the space of a generation, we have 

gone from the breakup of Ma Bell to what some fear may be its 

re-creation, at least on a regional level. The breakup of AT&T two 

decades ago unleashed an explosion of competition and innovation. 

The competitive forces freed by the ending of the phone monopoly 

led directly to the introduction of previously unheard of technologies, ranging from the fax machine, the cellular phone, e-mail, 

to the Internet itself. 

Consumers benefitted from a blossoming of new choices and services. Prices for phone services declined so dramatically that what 

was once an unusual and expensive event—placing a long-distance 

telephone call—became routine and almost cost-free. The cost to 

American business of telecom services dropped considerably, helping spur greater efficiencies and growth throughout the economy. 

We are now entering a brave new world of telecom competition. 

The acquisition of AT&T by one of its Baby Bell progeny, SBC, and 

the likely of acquisition of MCI by Verizon will create two telecom 

giants, each dominating many services throughout their regions. 

Should these mergers be consummated, SBC and Verizon will have 

a market share of about 90 percent of local residential consumers 

in their regions, 70 percent in long distance, and about 40 to 50 

percent in wireless. 

These figures give us pause, but we live in an exciting time in 

the telecom world where the pace of consolidation is matched by 

the speed of innovation. AT&T and MCI are both declining companies and have already withdrawn from marketing most services to 

residential consumers. As a result, with the important exception of 

the business market, there are few remaining areas where SBC 

competes with AT&T or Verizon competes with MCI. 

5

In addition, new technologies are emerging—services such as 

Internet-based telephone service and wireless connections to the 

Internet which may challenge SBC and Verizon, if given a chance. 

It is our responsibility to ensure that these emerging new technologies have a real chance to succeed. The possible benefits of new 

competition will drive growth throughout the economy for decades 

to come. 

We must insist that the promise of tomorrow’s technology is not 

stifled in its infancy by today’s consolidation, and we must seek to 

avoid the creation of a world where consumers are left with only 

two choices for a bundle of telecom services—the Baby Bell phone 

company and the cable company. 

So we have two concerns with these mergers. First, will this consolidation decrease the choices and increase the cost to consumers 

and to business customers, both large and small? And, second, how 

can we ensure that new technologies and new services can get access to the SBC and Verizon networks? 

A good place to start would be to require that the Baby Bells 

offer consumers the choice of buying Internet access without also 

requiring them to buy phone service. We expect to recommend additional specific pro-competitive merger conditions to the Justice 

Department and the FCC in the coming weeks. Securing merger 

conditions such as these will help ensure that the tremendous 

gains in telecom competition over the last 20 years are not lost in 

the midst of this industry consolidation. 

One more comment. As the Senator from Ohio said, I believe it 

is essential that our Committee hear from competitors and consumers affected by these mergers. We are disappointed that we will 

not hear any voices besides those of the merging companies today, 

but instead we will need to return to this topic in a few weeks so 

that all voices will be able to be represented. 

Thank you again, Mr. Chairman, and we look forward to hearing 

the testimony today. 

[The prepared statement of Senator Kohl appears as a submission for the record.] 

Chairman SPECTER. Thank you very much, Senator Kohl. That 

sets the overall parameters. 

Senator Cornyn, would you like to make an opening comment? 

STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM 

THE STATE OF TEXAS 

Senator CORNYN. Thank you, Mr. Chairman. Just briefly, of 

course, I would like to welcome all the witnesses here today. Mr. 

Whitacre is a constituent of mine and operates his headquarters 

out of San Antonio, Texas, my hometown, so I wanted to greet him, 

and all of you, and thank you for being here today. 

We understand that this is going to be the beginning of an awfully long process which is primarily going to reside in the FCC 

and the Department of Justice. So as I understand it, the purpose 

of this hearing is to be able to understand from the parties involved generally what the impact of these consolidations are going 

to be on competition, which we understand benefits consumers by 

keeping prices low, but also on innovation, and I will have a few 

questions in that regard. I will reserve the rest for my questions. 

6

Thank you, Mr. Chairman. 

Chairman SPECTER. Thank you very much, Senator Cornyn. 

Without objection, Senator Leahy’s statement will be made a 

part of the record, and I will now transfer the gavel to Senator 

DeWine. 

Senator DEWINE. [Presiding] Mr. Chairman, thank you very 

much. 

Well, we welcome our panel. Let me briefly introduce our panel. 

Edward Whitacre is the Chairman of the Board and CEO of SBC 

Communications. He has led SBC through the acquisitions of Pac 

Bell, Southern New England Telephone, Comcast and Ameritech. 

He began his career in 1963 as an engineer with SBC. 

Ivan Seidenberg is Chairman of the Board and CEO of Verizon 

Communications. He previously served as CEO of both Bell Atlantic and NYNEX. 

David Dorman is Chairman of the Board and CEO of AT&T. He 

began his career as the 55th employee of then-fledgling long-distance carrier Sprint, where he rose to become president. 

Michael Capellas is the President and CEO of MCI. When he 

joined MCI in 2002, he had previously served as president of Hewlett-Packard and as Chairman and CEO of Compaq Computers. 

We welcome all of you. Mr. Whitacre, you may start. Thank you 

very much. We are going to go by five-minute rule. Let me just say, 

gentlemen, that we have votes scheduled at three o’clock. We have 

five votes scheduled at three o’clock. That means that there will be 

a halftime at this hearing, so we will have to take a break, but we 

are going to go as far as we can go. 

Mr. Whitacre. 

STATEMENT OF EDWARD E. WHITACRE, JR., CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER, SBC COMMUNICATIONS, INC., 

SAN ANTONIO, TEXAS 

Mr. WHITACRE. Thank you, Senator DeWine. The title of this 

hearing—‘‘Remaking the Telecommunications Industry’’—is appropriate, as demonstrated by the SBC/AT&T merger. Our merger is 

a positive development for our customers, competition, and for 

America’s leadership in global communications. 

We plan to bring together modern networks, innovative, advanced products and services, talent and expertise, and a rich tradition of customer service and reliability. And we are going to ensure that the company which started it all more than a hundred 

years ago will be part of it for many years to come. 

Our merger comes as the U.S. telecommunications industry is 

trying to get up off the mat. For the first time in a long time, we 

see some light at the end of the tunnel, but the journey through 

that tunnel has been pretty hard. Since 2000, telecommunications 

service providers and equipment manufacturers have lost more 

than 700,000 jobs. Annual capital investment has declined by more 

than $70 billion. Companies have lost more than $2 trillion in market capitalization. 

Until just recently, SBC was losing 60,000 access lines every 

week. And in all honesty, adverse regulation has contributed to 

this downward spiral. So I think the natural result is Wall Street 

is investing less and less in telecom, telecom is investing less and 

7

less in its products and services, and we can see some of the consequences. Today, the U.S. is 11th in the world in broadband deployment. In short, this industry is in turmoil, and that is why we 

decided to do the SBC/AT&T merger. 

The reasons for combining these two companies are clear. First, 

while SBC has a strong presence in many local markets, we do not 

have a global network or a national network of our own. We lease 

one of those networks. AT&T has those assets and they are very 

good. 

Second, the next big thing in communications technology is voice 

over Internet protocol, or voice over IP. It has already opened the 

door to a host of new competitors. Dozens upon dozens of cable 

companies and others are using voice over IP to provide telephone 

service and they are winning a lot of customers. SBC does not have 

a consumer voice over IP service, but AT&T does. The combined 

company will have the resources and incentives to compete with 

voice over IP in our region, outside our region, and for business 

customers around the world. 

The third reason for our merger is the opportunity it creates for 

enhanced competition in the large-business customer segment. 

While we at SBC have made some progress in this market, it has 

been very slow going for us. AT&T will give us the ability to compete more effectively nationally and globally. 

For these reasons, the SBC/AT&T merger will enhance competition and should be viewed positively from an antitrust perspective. 

For the most part, SBC and AT&T do not compete head to head. 

This is certainly true in the mass market. Where we do compete 

in the mid- to large-business space, customers, will still have numerous choices from such diverse providers as systems integrators, 

equipment manufacturers, and other phone companies such as 

Verizon and Qwest. 

When you assess this market without bias, it is clear that no two 

companies can control this competitive and crowded space even 

after these mergers as currently contemplated. The same holds for 

access to the Internet by rural carriers. Our ability and willingness 

to connect rural companies to SBC’s IP backbone will not change, 

and we anticipate no change in pricing to these customers. 

This merger is a logical step in the evolution of a competitive industry that is light years removed from when the last telecom law 

was enacted in 1996. Today, there are more wireless subscribers in 

the U.S. than there are traditional phone lines. Data traffic now 

exceeds voice traffic by a margin of 11 to 1. 

Cable companies will offer phone service to two-thirds of American homes this year, and other competitors using IP-based services 

continue to grow. On March 9, the Wall Street Journal reported 

that America Online, AOL, will soon offer voice over IP service to 

its 22 million U.S. subscribers. In that same day’s paper, Cox Communications said in a letter to the editor that in some markets, including Orange County, California, 40 percent of consumers subscribe to Cox digital telephone and 82 percent of their phone customers use Cox for their long-distance service. 

None of this was envisioned when the Act was passed, which is 

why we need the laws to catch up. We need rules to treat new technologies with the lightest touch possible and which allow the comVerDate 0ct 09 2002 10:44 Jun 06, 2005 Jkt 021393 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\21393.TXT SJUD4 PsN: CMORC
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petitive marketplace to discipline retail prices. Such reforms would 

spur much-needed innovation, investment and growth—goals that 

I hope and believe this Committee shares. 

Thank you, Senator. 

[The prepared statement of Mr. Whitacre appears as a submission for the record.] 

Senator DEWINE. Mr. Whitacre, thank you very much. 

Mr. Seidenberg. 

STATEMENT OF IVAN SEIDENBERG, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, VERIZON COMMUNICATIONS, INC., 

NEW YORK, NEW YORK 

Mr. SEIDENBERG. Good afternoon, Mr. Chairman and Members of 

the Committee. Thank you for the opportunity to be part of this 

discussion on the state of competition in the restructuring communications industry. 

As you are aware, Verizon has announced its intention to acquire 

MCI. This is a response to the dramatically different competitive 

landscape we have in communications as the industry restructures 

around new technologies and new markets. 

Competing technologies now offer consumers a wide range of 

choices for voice, data, and increasingly video services. Likewise, 

large business customers can now choose a much wider range of 

services from a growing universe of suppliers, including telephone 

companies, systems integrators, software providers, equipment 

makers and wireless companies. In fact, earlier this month Microsoft announced a major foray into the enterprise business with a 

software platform that embeds voice as a free application, much 

like instant messaging today. 

To compete in this dynamic environment, Verizon has sought to 

differentiate our wireless and wire line services by investing in 

spectrum, digital capabilities and broadband technologies. Now, by 

acquiring MCI, we are taking the next natural step by transforming ourselves around the evolving needs of large business customers, a segment in which Verizon has a negligible share today. 

MCI and Verizon have complementary assets and capabilities. 

Verizon has strong local assets and a solid presence among local 

and regional customers. MCI has strong IP networks and products, 

and a solid base of national and global customers. Together, we will 

create a strong, new competitor with the products, network reach 

and capital capacity required to succeed in this part of the business. 

This acquisition does not alter the dynamics that are reshaping 

the consumer business, nor does it alter the current universal service program or its funding. Long-distance and local as stand-alone 

businesses are on the way to obsolescence with or without these 

transactions. 

However, is we look at this in terms of the future, it is apparent 

that customers in all segments of the communications market will 

benefit. Consumers will benefit because we will have an advanced 

broadband platform capable of delivering next-generation services 

in markets across the entire U.S. Businesses will benefit because 

we will be a strong, stable and secure supplier of advanced communications services. Federal and state government customers will 

9

benefit because we will be able to invest in the networks that are 

critical to their public mission. 

National security will benefit because we will continue to 

strengthen the infrastructure that is a critical component of government communications systems, including those used by the Departments of Defense and Homeland Security. And, of course, the 

U.S. economy overall will benefit because we will invest in the new 

technologies so critical to job creation and leadership in the global 

marketplace. 

This transaction is about the future. Verizon and MCI will be a 

national full-service company with the technology and financial 

strength to deliver the broadband future and create economic 

growth in our industry. 

Thank you. I look forward to your questions. 

[The prepared statement of Mr. Seidenberg appears as a submission for the record.] 

Senator DEWINE. Mr. Dorman. 

STATEMENT OF DAVID DORMAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AT&T CORP., BEDMINSTER, NEW JERSEY 

Mr. DORMAN. Mr. Chairman and Members of the Committee, 

thank you for inviting me to speak with you today about the merger of SBC and AT&T. 

There is much to look forward to and nothing to fear from joining 

together these two companies. Together, we intend to set the global 

standard for communications for years to come. We will be able to 

bring advanced IP-based broadband services to market more rapidly and to a wider range of customers than either company could 

alone, heightening competition for voice, data, wireless and video 

services. 

The rapidly evolving telecom market has changed both companies. SBC today is focused on broadband, video and wireless, while 

AT&T is now focused on business enterprises, government and 

wholesale customers. Most of you and your parents and grandparents have known AT&T primarily as your phone company serving residential consumers. That is not the AT&T of today. The 

AT&T of today is a global networking provider that enables large 

businesses, state and Federal agencies and other customers to deliver voice, data, video and Internet applications securely and reliably. 

The reasons for this transformation are, I think, well known to 

you. The telecom industry has experienced a very difficult environment. Over-investment by many carriers, tremendous over-supply, 

a wave of new technologies, an ever-shifting regulatory environment, and even criminal behavior have been experienced. 

AT&T’s traditional wireline services are being rapidly supplanted 

by wireless services and Internet-based applications such as voice 

over IP, and mass market customers are increasingly demanding 

bundles of services that we are not well positioned to provide. As 

a result, we determined last year that we would no longer actively 

compete in the traditional mass market, which includes residential 

customers and small businesses, and that we would focus virtually 

all of our attention on large-business, government and wholesale 

customers. 

10

Last summer, we aggressively and irreversibly implemented our 

new plan, radically scaling back the operation of our consumer unit 

and small business units, substantially reducing head count, dismantling marketing and sales functions, retiring support infrastructure and applications, and preserving only those functions 

necessary to care for our declining number of mass market customers. 

The combination with SBC is thus largely a combination of two 

companies with complementary assets, businesses and skills. 

Bringing both together should provide a range of benefits. It will 

create a world leader in advanced communications services as the 

new company uses its increased efficiencies and expertise in local, 

broadband, wireless and global networking services to speed the 

transformation of the legacy networks both at AT&T and SBC to 

a new integrated IP-based network. 

It will reduce our costs and enhance our operations, allowing us 

to offer better services and better value to all of our customers. It 

will provide our government customers with more reliable, more resilient and more efficient network capabilities, and it will spur innovation, increasing the pace and breadth of the work of our renowned AT&T Labs, with benefits for all types of customers. 

The merger, moreover, will not lessen competition; it will enhance it. The improved ability of the combined company to bring 

innovative and advanced services will spur others, including cable, 

wireless and VoIP providers, to enhance their own offers as well. 

The transaction will lead to greater competition between the Bell 

companies themselves, and will produce a leading global competitor. 

The transaction will not harm competition in any market. In the 

mass market, SBC is a leading provider of service in its 13-State 

region, but AT&T is no longer an active mass market competitor 

in those States. The merger will also not impair competition in the 

provision of services to business customers, given the large number 

and diversity of competitors for businesses, the sophistication of 

those customers and the purchasing power and practices that they 

employ. 

Nor is there any serious argument that the merger will diminish 

competition in wireless, where AT&T is not currently a provider, 

international, where SBC has a very limited share, or in Internet 

backbone services, where many large providers compete. Rather, 

the merger is a step forward in the evolution of this industry, creating a healthy, competitive and innovative American communications company. 

In conclusion, I would like to thank you again for the invitation 

to speak with you about the very significant consumer and public 

benefits this merger will produce. 

[The prepared statement of Mr. Dorman appears as a submission 

for the record.] 

Senator DEWINE. Mr. Dorman, thank you very much. 

Mr. Capellas. 

11

STATEMENT OF MICHAEL D. CAPELLAS, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, MCI, INC., ASHBURN, VIRGINIA 

Mr. CAPELLAS. Thank you, Mr. Chairman. My name is Michael 

Capellas and I am the President and CEO of MCI. Obviously, over 

the past 5 years, our industry has undergone a series of fundamental changes in technology, in the market, in the regulatory environment, and that technology will continue to accelerate and the 

incredible potential of the Internet alone guarantees even greater 

changes in the future. 

I have been CEO of MCI for roughly two-and-a-half years. I 

spent the prior 25 years in the computing industry as a customer 

of telecommunications services and as a developer who used the 

power of global networks to fuel innovations in the software industry. I do believe in the power of this technology and in the future 

of innovation. I have always liked to say there has been a computer 

on the end of a network for a very, very long time. 

Many of the changes in the telecom industry are actually being 

driven by broader movements in information technology. First of 

all, there is a movement toward standardization. Basic building 

blocks such as servers, storage and microprocessors are simply now 

standard devices that are addresses on a network and can reside 

anywhere. 

Second, the rise of Internet commerce has accelerated the adoption of software standards that enable different systems to talk to 

each other. At the same time, new tools like Web services allow developers to write applications across different platforms. 

Today’s communications travel the networks in packets. There is 

no difference between a voice or a data packet. Whether you are 

making a phone call or purchasing an MP3 music file, it is all the 

same. A packet is a packet is a packet. 

The Internet-driven standards that allow these systems to talk 

to each other have redefined network requirements. Formerly, 

local, long distance and data traveled along separate network 

paths. Now, there is the need for integrated intelligent paths that 

can carry voice, data and streamed video without the developer or 

end user needing to know or care how the path is developed. 

And one doesn’t need to be a computer scientist to sort of see this 

in everyday life. A Blackberry is a great example of a device that 

can instant-message, make a phone call, get news or sports, or 

stream a video, and this is integrated communications at work. 

MCI has been a global provider of communications. We operate 

one of the industry’s most expansive global IP backbone and serve 

many of the most demanding applications in the world. We serve 

major financial institutions, complex engineering and manufacturing centers, and provide complex solutions for more than 75 government agencies. 

Many of these customers are the early adopters of this new computing infrastructure and are led by some of the best and brightest 

technologists. These customers have some common requirements—

high-end reliability and security, and then global delivery, ease of 

adapting new technologies and new applications, and low-cost infrastructures. 

At the heart of all these requirements is the need to mesh local 

access with wireless capabilities and the backbone network. Much 

12

of today’s network architecture was incubated at MCI, in part due 

to the vision of Internet pioneer Vint Cerf. It is know as the Internet Protocol, or IP. In its simplest terms, IP allows applications, 

from wireless e-mail to video streaming, to be rolled out without 

understanding or changing the core network elements underneath 

it. 

New technologies and new delivery methods are reshaping the 

market. In addition, recent regulatory and legal decisions have 

made a significant impact, particularly on the consumer segment. 

The underlying economics have been fundamentally altered. So 

where is MCI in this perfect storm of IP convergence, market evolution and regulatory change? 

Our plan is to leverage our IP network by refocusing on largebusiness and government customers and deemphasizing our consumer business. It would be virtually impossible to sustain our traditional voice business based on circuit switch technology. 

MCI has also entered into an agreement with Verizon to combine 

our strength. MCI owns a state-of-the-art IP backbone network, but 

no significant first-mile facilities or wireless. Verizon has extensive 

first-mile facilities and state-of-the-art broadband. MCI has a largeenterprise and government customer base which has remained 

loyal because we provide world-class products and service quality. 

Verizon provides local access to many of those same customers. 

Some have asked how this merger will affect competition. In my 

view, the combined company will benefit both consumers and business users. It will deliver end-to-end network capability and will 

provide innovation and next-generation applications. 

Technology has changed the landscape. Significant competition 

for consumers will come from alternate technologies the merger 

will not affect, like cable and wireless. And the same is true for 

business and Internet service markets. Wireless and other technologies are redefining competition. In addition, we are seeing the 

increased presence of broad-based technology companies like IBM 

entering the traditional telco market. This is the natural evolution 

of changing competition as technologies converge. 

In conclusion, Mr. Chairman, technological, marketplace and regulatory changes are driving the forces behind the industry restructuring. Traditional notions of long-distance companies have become 

obsolete. The merger of MCI and Verizon is a reflection of these 

fundamental changes. The merger will not have an adverse effect 

on competition in any line of business. On the contrary, it will 

strengthen MCI’s ability to compete and continue to innovate. 

Technology will, in fact, move on. 

[The prepared statement of Mr. Capellas appears as a submission for the record.] 

Senator DEWINE. Well, we thank you all very much. We have a 

vote. We are now ten minutes into the vote, so we are going to 

have to leave. If it is five votes, we are going to be a while, so we 

will be back. 

[The Committee stood in recess from 3:10 p.m. to 4:45 p.m.] 

Senator DEWINE. Well, let me call the hearing to order. Thank 

you all for your patience. We apologize. We had five votes and we 

are back. 

Let me now turn to Senator Kohl for his questions. 

13

Senator KOHL. Thank you, and likewise we apologize for the 

delay. 

For Whitacre and Mr. Seidenberg, we have heard a lot of testimony today about the competition your companies will face in the 

years ahead from new technologies. One important new way for 

consumers to make phone calls is through a technology known as 

VoIP, as you know—voice over Internet protocol. Making phone 

calls using VoIP requires a high-speed Internet connection—a service many consumers obtain from their telephone company—but neither SBC nor Verizon will sell consumers high-speed Internet service without also requiring that the consumer also buy local phone 

service. This destroys the incentive of the consumer to purchase 

VoIP phone service and is therefore a significant obstacle to the deployment of this technology. Would you be willing to commit as a 

condition of approval of your merger to sell separate Internet service to consumers without also requiring them to buy phone service? 

Mr. Seidenberg, you will have the opportunity to respond first, 

and then you, Mr. Whitacre. The question is would you be willing 

to commit as a condition of approval of the merger to sell separate 

Internet service to consumers without also requiring them to buy 

phone service. 

Mr. SEIDENBERG. Senator, I think we have already indicated that 

on this question we would be providing to the market a service. If 

I understand the question, in our industry we call it, quote, ‘‘naked 

DSL.’’ So I think in the past we have always provided DSL with 

a phone number. That is the way we provide service. In the future, 

we are in the process of working through the mechanics of offering 

a DSL line without a phone number. 

Now, your specific question is would I agree to a condition. At 

this point in the process, sir, I would prefer not to agree to any conditions, but I think on the point you raise we are going to do exactly what you said. 

I would also make one other point. You don’t need a broadband 

line to get voice over IP. There are companies today that put adapters on that do that. So I think voice over IP comes in a lot of flavors, one of which is over a broadband line. 

Senator KOHL. So you are saying you wouldn’t want to be quoted 

as agreeing to the merger based on that condition, but you are 

moving in that direction? 

Mr. SEIDENBERG. Yes, that is correct. 

Senator KOHL. Mr. Whitacre. 

Mr. WHITACRE. Well, we are working the same way. There are 

companies out now buying loops and they put their own equipment 

and resell it. So, in essence, what you are suggesting is being done. 

Now, would SBC do it? Of course, SBC would do it, but SBC is not 

going to do it under the price of what it costs us to provide it. We 

have been there and done that with something called UNIP, which 

was very bad for this industry. We would be willing to do that 

under the circumstances that it is not underwater and there is a 

profit to be made for SBC shareholders, too. So the answer is yes. 

Senator KOHL. The answer is, yes, you would be willing to condition the merger on that? 

14

Mr. WHITACRE. No, I wouldn’t be willing to condition the merger 

on that. But would we be willing to sell it? Of course, and we are 

working toward doing just that. 

Senator KOHL. All right. Mr. Seidenberg and Mr. Whitacre, on 

February 17 the Washington Post reported that the FCC was investigating complaints by a company called Vonage that local 

phone companies were blocking or disrupting access to their VoIP 

Internet phone service. 

Has either of your companies ever intentionally done this? Will 

you commit as a condition to approval of your merger not to interfere with your customers’ Internet connections so as to degrade or 

block access to competing VoIP phone service? 

Mr. SEIDENBERG. Senator, I got this question at the House hearing and checked it out. I know of no case in which we are blocking 

any traffic from Vonage, and as a normal course of practice, we 

pass all this Internet traffic through. And just to give you some 

comfort, we also buy access to AT&T and Ed’s network to put our 

Internet traffic over it. So we would have no reason to block anybody else’s traffic, when we are putting our own on other people’s 

network. 

Senator KOHL. So you would approve as a condition of the merger? 

Mr. SEIDENBERG. Well, I don’t like conditions. I guess at this 

point in the process, we need to see the whole picture. But as a 

matter of practice, sir, we are not doing anything that would suggest we are blocking anybody’s traffic. 

Senator KOHL. Mr. Whitacre. 

Mr. WHITACRE. SBC would not block any Vonage traffic or anybody else’s, and has never done that, would not do that. That is not 

the way we do business and it is just not going to happen. 

Senator KOHL. So you would agree to that as a condition of the 

merger? 

Mr. WHITACRE. Well, you say ‘‘condition.’’ We are not going to 

block anybody’s traffic, Senator. 

Senator KOHL. Okay, a last question and then we will turn it 

over to Mr. DeWine. 

Mr. Seidenberg and Whitacre, as you know, one important possible alternative for consumers will be wireless connections to the 

Internet. Using these connections, consumers can access alternative phone providers such as VoIP and avoid the Bell companies’ 

connection to their homes. Cities and municipalities such as Philadelphia have begun to build such wireless networks and plan to 

offer it to their residents as a municipal service. 

In your testimony today, you have spoken at length about the 

promise of new technologies and how we should not worry about 

these mergers because the deployment of these technologies will 

create an abundance of new telecom competition. 

Yet, at the same time, we have noticed your companies lobbying 

State legislatures around the country to stop cities from building 

these new networks to deploy these very technologies. Pennsylvania recently adopted such a law and other States considering 

such laws include Illinois, Texas and Florida. 

15

So why have your companies been actively lobbying for such 

State laws to ban the deployment of municipal wireless? Will you 

commit to cease your efforts, should your mergers be approved? 

Mr. Seidenberg, we will give you the opportunity, of course, 

which you so much desire, to answer first. 

Mr. SEIDENBERG. Actually, I would like to go before Ed just to 

make sure I get it in before whatever he says. I don’t know what 

he is going to say. 

Look, we have squabbled a little bit with a few municipalities 

and let me tell you why. First of all, we can’t stop anybody from 

putting any technology they put in. But, generally, we find it unfair 

that municipalities that regulate us, set our taxes, set our franchise fees, participate in running our company in some fashion, 

also now want to compete with us under a different set of rules. 

So every time we see that happening, we point it out. 

We would also make the point that in all these places where municipalities want to get into this, with all due respect, they don’t 

do a very good job either, which then impacts us because the cities 

usually come back to us and we need to spend money to fix the 

things that have occurred. So we are not in the business of stopping anybody from doing it, but where we think the rules are unfair, we are going to point it out. 

Senator KOHL. In Pennsylvania, the law was adopted at the behest of your company’s lobbying, is that correct? 

Mr. SEIDENBERG. I am sorry? 

Senator KOHL. In Pennsylvania, the Pennsylvania law was 

adopted, as I understand it, as—

Mr. SEIDENBERG. But it didn’t prohibit the municipality from 

providing the service. 

Senator KOHL. Right. 

Mr. SEIDENBERG. It gave us a chance to jaw-bone about it, but 

it didn’t prohibit it from doing it. 

Senator KOHL. Mr. Whitacre, where do you come from on this? 

Mr. WHITACRE. Mr. Seidenberg answered that as I would. They 

are the ones that make the laws, the rules, charge franchise fees, 

et cetera, et cetera, and then to compete against us makes it an 

unfair competition. From a taxpayer’s standpoint, I really don’t 

want my tax dollars to be used by a municipality or a local government to build something in competition where many other businesses already are. But as Ivan said, we can’t stop anybody from 

putting any technology out there. 

Senator KOHL. So the lobbying of State legislatures around the 

country to stop cities from building new networks to deploy these 

new technologies is not an activity that you all engage in, or you 

do engage in that? 

Mr. WHITACRE. Oh, we have engaged in that. 

Senator KOHL. You do engage in that? 

Mr. WHITACRE. You bet. 

Senator KOHL. Yes. 

Mr. WHITACRE. You bet we will. I mean, again, those municipalities, those governing bodies regulate us and at the same time they 

are competing with us. That makes no sense, so we are certainly 

going to lobby against that. But can we stop them? No, we can’t. 

They can put one out there if they want. 

16

Senator KOHL. Sure. They can do whatever they wish. 

Mr. WHITACRE. Sure. 

Senator KOHL. Mr. Seidenberg, were you clear in your response 

to that? 

Mr. SEIDENBERG. I think so. I would like to clarify this. My understanding is this is not a programmable activity on our part. If 

we see something egregious, we go after it, but this is not something that at every single place in the country we have a policy 

that argues about it. It is only where we think there is a big duplication of effort and it is unfair. So, yes, we do it, but it is much 

more episodic. 

Senator KOHL. Mike? 

Senator DEWINE. Mr. Whitacre and Mr. Seidenberg, the biggest 

antitrust issue presented by these mergers appears to be in the so 

called enterprise market. I would like to examine the impact of 

these deals on small and mid-size businesses, the companies served 

really most often by AT&T, MCI and their own regional Bell. 

It makes sense that you have so far focused on medium and 

smaller accounts within your region. It also makes sense that, postmerger, you will have a great deal of incentive to pursue the major 

accounts even if they are out of your home region. But what about 

pursuing the smaller and mid-sized business accounts out of your 

region? Doesn’t it make more sense to leave those to the other regional Bell which already has a relationship with them and the 

local facilities to serve them? 

Why attempt to compete out of your region, where you would 

need access to your competitor’s network? And if that is the case, 

aren’t we moving from a situation where we have three major competitors—AT&T, MCI and the local Bell—down to only one? Isn’t 

that a clear antitrust problem? 

Mr. SEIDENBERG. Does Ed get this one first? Mr. Chairman, do 

you want me to do this one first? 

Senator DEWINE. Well, you know, you went first last time. 

Mr. SEIDENBERG. I think he should go first. 

Senator DEWINE. Do you think it is his turn? 

Mr. SEIDENBERG. I think so. 

[Laughter.] 

Mr. WHITACRE. You keep talking and I will forget the question. 

Doesn’t it make more sense? There are many, many competitors 

in that space that you are talking about. We compete now against 

Verizon, as an example, against AT&T, against MCI across the 

country in some medium, some small and some enterprise businesses. There are many other people or other companies in that 

business, though, that people don’t think about everyday. You can 

think of Cisco, you can think of IBM, you can think of many manufacturers, you can think of Qwest. You can go on and on, so the 

competition in that space is not three; it is three times maybe, I 

don’t know how many, but it is many, many competitors in that 

space. 

So it is not going down to three. There are many competitors in 

that space and I think it makes sense on a business case basis—

on a case-by-case basis, you would have to decide where you would 

compete, but certainly we would anticipate doing that. 

Senator DEWINE. Mr. Seidenberg. 

17

Mr. SEIDENBERG. Yes, Senator, I would just add this. I think the 

way we would see it is the market is globalizing. So a small-business customer in Pittsburgh or in Milwaukee or in Nashville want 

a choice of suppliers, and I think Ed said it. Small-business customers get services from cable companies in the form of modems. 

They get service from wireless companies. 

And with our combination with MCI—MCI has a network that 

extends into many of these cities, so we would have the capability 

of being a third or a fourth or a fifth supplier to these accounts. 

Actually, I think it is just the opposite. With our heft, muscle, 

brand, our operations focus and the assets that MCI brings to the 

table, I think we are in a better position to provide more choice for 

the small and medium customer across the country. So I think we 

are just following the natural evolution of the market. 

Senator DEWINE. Mr. Whitacre, the three I mentioned are the 

three biggest, though, are they not? 

Mr. WHITACRE. You know, Senator, I don’t know. We certainly 

would be up there, but I think we often overlook the impact these 

other companies have had. I mean, we are not talking small companies. We are talking about companies that have thousands and 

thousands of customers that are, I guess, below this radar screen. 

As far as the enterprise business goes, SBC is a small player, a 

very small player. Mr. Dorman would have to answer for AT&T, 

but we are quite small in the enterprise space. In medium and 

small business, we are stronger in our region, but we certainly 

have a lot of competition. 

Senator DEWINE. Does anybody else want to jump in here? 

Mr. SEIDENBERG. If I might—I am sorry, guys, but I just want 

to address something you said in your opening remarks. If the nature of the question goes to how many telcos will provide these 

services, then your point is fair that you can look at one, two or 

three that do that. But the customer’s dollar is green and they 

don’t care who they buy these services from. 

So the fact is the market now has five, six, seven different places 

to buy the services they used to buy just from the telco. So as we 

move into these markets, we are dealing with a very different base 

of competitive activity in these areas. 

Senator DEWINE. Anybody else? Mr. Dorman. 

Mr. DORMAN. What we have found that happens on a local basis 

is smaller companies that compete locally do a very good job of 

serving small businesses in their home areas. Examples of that are 

people like McLeod Communications up in the upper Midwest has 

done a very good job and built a business of almost $1 billion of 

revenue. 

You have Broadwing, XO, Global Crossing, Level 3. Cox Cable 

just announced that they had just passed 300,000 business customers, and they just started selling to business customers about 

two-and-a-half years ago. Time Warner Telecom is another cableaffiliated company which has done very well in the medium-business market. 

So what we find competing nationally is, yes, we do see the Bell 

company certainly competing in the region, but typically there are 

at least five to seven other providers besides MCI and ourselves. 

We didn’t mention Sprint. Sprint is still a $7 billion-plus company 

18

in the long-distance and communications space, and more than half 

of that comes from business customers, about $4.5 billion, in fact. 

So my perspective is that there is an abundance of choice for 

business customers. Certainly, in the context of medium and small 

customers there is even more. Large customers typically buy more 

sophisticated things, but even there, there are five to six competing 

providers. I think Ed mentioned IBM. In almost every one of our 

large-customer bids these days, we see IBM, EDS, CSC, even Lockheed as systems integrators offering communications and IT services as a bundle. Recently, we lost Bristol Myers Squibb to BT, 

British Telecom. So there are a number of different competing players across the market. 

Senator DEWINE. Mr. Capellas and Mr. Dorman, as part of your 

efforts to compete with the Bell companies in serving enterprise 

customers, both of your companies purchase local access facilities 

that would allow you to provide facilities-based service to many 

business customers. Now that you are planning to merge with 

Verizon and SBC, respectively, wouldn’t competition be best served 

by a divestiture of any of those overlapping assets to other CLECs 

who could use them to compete against the newly-merged entities? 

Mr. CAPELLAS. I think first, to put it in perspective, about 52 

cents on every dollar we spend has traditionally gone for local access. In fact, we actually have very few facilities which are local. 

That, in fact, is part of the reason for the merger, but right now 

we have very, very limited local access capabilities. So while no decision has been made on how we deal with those, it is a very, very 

small part of our business. 

Senator DEWINE. Mr. Dorman. 

Mr. DORMAN. In the case of our direct overlap with SBC, we do 

business in SBC’s 13 States, as I recall, in over 100,000 different 

establishments or buildings. We have facilities overlap with them 

in something like 2 percent of the cases where we have a fiber into 

a building that they have service into. 

In most mergers, redundant facilities like that end up becoming 

synergies anyway. So while not committing anything for SBC looking into the future, I think that on a case-by-case basis the major 

thing I would be concerned about is disrupting customers. If you 

have a major data network for an American Express and five of the 

locations happen to be in buildings where you had fiber and SBC 

didn’t and you had to convert them over, I would just simply be 

wary of the impact on customers. But rejecting that out of hand, 

I don’t think is necessary. In other words, it should be something 

that we would look at. 

Senator DEWINE. Let me move to another ramification of these 

proposed mergers. Ever since the break-up of AT&T in 1984, we always could count on AT&T and MCI to be on the opposite side of 

the fence from the Bells on public policy disputes in front of Congress or at the FCC or in the courts. Now, while many of those 

issues are now resolved, there are many that will no doubt arise 

in the near future as we consider possibly rewriting the Telecom 

Act and as we attempt to navigate our way into an era of enhanced 

services. 

Who is going to take the place of AT&T and MCI? As policymakers, who will we look to for an alternative view now if this 

19

takes place? And really to get into the crass business and political 

reality of all of this, what if one or both of the merged entities decides they don’t like a decision at the FCC or of the Congress? 

Really, there is no one else who has the nationwide resources, the 

political heft or the large constituencies in each State. Who is going 

to have the resources to fight the merged entities in court or at the 

FCC? Isn’t that a practical problem? 

Mr. CAPELLAS. I think like lots of things, you can look at it as 

an opportunity. If you look at where the innovation and technology 

has been and the movement particularly in customer requirements, 

the goal has become how do we take these what should be complementary, seamless technologies and put them together. 

If you are a customer and you sort of look at local access, wireless bundling, IP, the software access to reside it, the customer’s 

goal is to actually bring it together to a common goal, and then to 

set standards across the industry which allow that to happen, to 

allow these networks to talk to each other. 

So maybe the new construct is how do we actually get an industry consortium that drives standards that gains for productivity so 

all these devices could talk to each other. So as a practical matter, 

maybe the nature of the beast is no longer in an open warfare, but 

actually in a set of collaborative sort of efforts and consortia that 

allow these standards to develop so we can actually take it to the 

next level. 

Senator DEWINE. Herb. 

Senator KOHL. Mr. Whitacre and Mr. Seidenberg, many analysts 

see one of the biggest dangers to competition from these deals is 

their effect on the business market. AT&T and MCI are today vigorous competitors for the telecom business of large and small enterprises throughout the Nation. The mergers’ critics are concerned 

that once the mergers are completed, the combined SBC/AT&T and 

Verizon/MCI will prefer to concentrate their marketing efforts on 

their respective regions and the competition now offered by AT&T 

int the Verizon region and MCI in the SBC region may well be lost. 

Mr. Whitacre and Mr. Seidenberg, after these mergers will SBC 

and Verizon continue MCI’s and AT&T’s efforts throughout the Nation, or are the critics correct in fearing that your two companies 

will engage in a divide-and-conquer strategy and that the enterprise market will lose a strong competitor? 

Mr. WHITACRE. Well, Senator, SBC will continue to engage in 

that kind of competitive activity across the United States. In other 

words, where AT&T is, we will continue to compete. So the critics 

are wrong in that case. I think it is a good thing for the Nation. 

We will be able, from a stronger company, to do more in that 

arena, not less, and the technology is going to enable that. So from 

an SBC standpoint, of course, we will be competitive all over the 

Nation. 

Senator DEWINE. Mr. Seidenberg. 

Mr. SEIDENBERG. Senator, I agree exactly, and I think the critics 

misunderstand something. If you take wireless, we have built facilities across the country. We compete everyplace. With respect to 

enterprise, we didn’t have the physical capabilities to go to every 

city in the country. With a combination with MCI, it gives us access to the top 125, 150 MSOs across the country, and we will use 

20

the facilities of MCI to compete aggressively in all those markets. 

Many of them are not in what you would call our home market. 

Senator KOHL. Although we have heard a lot about cable as an 

alternative provider of phone services, isn’t it true that thousands 

of small businesses—supermarkets, gas stations, dry cleaners—do 

not have cable service? So what alternatives will these small businesses have after these mergers? 

Mr. WHITACRE. Senator, I would like to invite you to San Antonio 

and take you down a few streets where those kinds of businesses 

that you are talking about exist. I think the cable companies have 

a plan; I think they have a business plan to serve those kinds of 

people. I would like to show you what they done. So, clearly, they 

are after that kind of customer. They are doing it, and these businesses you talk about are going to have alternatives. They have got 

many alternatives now; they are going to have even more with 

cable. It is not just SBC serving those. It is many other companies. 

Senator KOHL. What do you think, Mr. Seidenberg? 

Mr. SEIDENBERG. I agree with that, sir. It is the same thing. 

Again, it is a question of how you define the market, and as Michael Capellas said a minute ago, there is a very fine line. If there 

is any distinction between a computer and a phone network, you 

can hardly determine it anymore. A packet is a packet. 

So if you buy AOL service, you can buy a very cheap line from 

Ed and then put all of your data over that AOL service and Ed gets 

no revenue for it. So there is direct competition for the lines. There 

is substitutable competition for the services. These small-business 

customers, because of the explosion of technology, have choices 

today they never had before. 

Senator KOHL. Thank you. 

Senator DEWINE. I have a statement for the record from Senator 

Sam Brownback which I would ask unanimous consent to be made 

part of the record. Without objection, it will be made a part of the 

record. 

Mr. Whitacre, let me ask you a question about the SBC consumer market. First, with regard to the consumer market and 

SBC’s territory, take a State like Texas. My understanding is that 

in the State of Texas, the consumer long-distance market share 

held by SBC is about 70 percent. Is that correct? 

Mr. WHITACRE. I don’t know exactly, Senator, but that is in the 

ball park. 

Senator DEWINE. That is in the ball park? 

Mr. WHITACRE. Yes. 

Senator DEWINE. How long has SBC been able to offer long-distance service to its customers in Texas? Do you know? 

Mr. WHITACRE. I think about 3 years. I would have to check, but 

it has been several years. 

Senator DEWINE. My understanding also is that AT&T holds 

about 15 to 20 percent of the consumer long-distance market in 

Texas. Does that sound about right? 

Mr. WHITACRE. I don’t know, Senator. You would have to ask Mr. 

Dorman. 

Senator DEWINE. Mr. Dorman, is that about right? 

Mr. DORMAN. I am not sure. It would be less than 20 percent, 

would be my expectation. 

21

Senator DEWINE. More than 10? 

Mr. DORMAN. Yes. 

Senator DEWINE. So if the merger were approved, the combined 

companies would account for 80, 90 percent of consumer long distance in Texas. Would that be right? 

Mr. DORMAN. Well, if you don’t count wireless and you don’t 

count cable, if you talk traditional wireline long distance, that fact 

might be true. But I suspect on the basis of actual usage, if you 

included all the long distance originated on cell phones, I don’t 

think the number holds up as a percentage. 

Senator DEWINE. I want to be fair about this. What do you think 

the percentage would be if you included those? 

Mr. DORMAN. I would bet that wireless originates about as much 

long distance in Texas as wireline, maybe more. 

Senator DEWINE. So you would put it, then, at 45 percent, approximately? 

Mr. DORMAN. That would be my guess. 

Senator DEWINE. Of that universe? 

Mr. DORMAN. Yes. 

Senator DEWINE. Let me ask an additional question, Mr. 

Whitacre. What are SBC’s market share goals for consumer long 

distance in California? 

Mr. WHITACRE. I guess broadly put, we want to serve all our customers. We are not the only company operating in California. For 

example, Verizon is there. There are many competitors there. The 

cable companies are quite strong and have recently put out that 

they probably have a bigger share than we do where we traditionally operated. 

I think any business person who is truthful would like to have 

as much share as they can get. As a practical matter, that is a 

function of a lot of things—price, what you do. But certainly we are 

trying to serve the consumers we have in California with our longdistance service. That is a goal of ours. We would like for all our 

customers to have SBC long distance. They do not now. 

Senator DEWINE. What about in the Midwest, former Ameritech 

States? 

Mr. WHITACRE. Senator, I can’t recall the percentages. As you 

know, we got in long distance much later, so our percentages would 

be considerably smaller there. I would just have to get you the correct number, but it would be much smaller. 

Senator DEWINE. All right. When you do that, could you also get 

Missouri, Oklahoma and Kansas? 

Mr. WHITACRE. Sure. I would be happy to do that. 

Senator DEWINE. Mr. Capellas, there is a great deal of interest 

in the sale of your company. As we all know, there is still a certain 

degree of uncertainty as to whether or not Verizon or Qwest will 

be successful in their efforts to purchase MCI. We certainly don’t 

want you to disclose any corporate secrets or anything you don’t 

feel you can tell us about, but can you tell us what the status is 

of MCI’s deliberations and when we might expect to see a decision? 

Mr. CAPELLAS. Well, we do have a signed merger agreement with 

Verizon, and so that is the first order of business. 

Senator DEWINE. Right. 

22

Mr. CAPELLAS. There has been a process undertaken with which, 

with the consent of Verizon, there could be some additional discussions. That is a time period that ends on Thursday, this coming 

Thursday, and so at this point there are some deliberations between the teams. But we do have a signed merger agreement and 

if there is any reason to reevaluate, if the situation warrants, we 

will, but at this point we have a signed merger agreement. 

Senator DEWINE. There was one report—and I may have read it 

very quickly, but one report that Qwest’s offer was a bigger offer. 

Could you comment on that? That was a published report, and 

again I may have not read all the fine points and there may be fine 

points you would like to elaborate on. 

Mr. CAPELLAS. Every economic decision, no matter what it is, has 

a balance of risk and reward and a balance of short term and long 

term. So the real question here is when we entered into our agreement with Verizon, the thing we were looking for was the ability 

to compete in a market which was changing—wireless capabilities, 

access economics, financial strength. And, you know, it is the fiduciary responsibility to take in all the considerations, and so again 

all those considerations were taken in and our deal with Verizon 

was really based on long-term ability to go to market. 

Senator DEWINE. Do you want to comment on Qwest? 

Mr. CAPELLAS. No. I don’t think it would—there has been a period open in which some conversations could take place, but I 

would have nothing to add at this point. 

Senator DEWINE. Fair enough. 

Mr. Whitacre, let me talk for a minute about jobs, and I will put 

my hat on as U.S. Senator from Ohio for a moment, if I could. 

There has been some discussion about job losses for your company 

overall, and I wonder if you could comment on that and also comment on what impact this might have for the State of Ohio. 

Mr. WHITACRE. Well, Senator, for the past several years SBC’s 

workforce has decreased in size. It has decreased because our revenues have been falling, our earnings have been falling. That is part 

of the problem I addressed in my remarks with this industry. It is 

an industry that has lost a lot of jobs because of declining revenues. 

Specifically, with the AT&T merger, we have said generally 

about, it looks like, 13,000 jobs would be impacted across both companies. But you have to remember SBC would normally lose by attrition 12,000 a year; that is retirements, et cetera. So I suspect 

with normal attrition, there is probably not much change. 

We are not doing this merger to continue to shrink. This is about 

changing something in this industry and making these two companies viable and being able to grow again. This is an environment 

in which you would hope you could increase jobs if it is successful, 

and you do something exciting for a business that has been in the 

doldrums for quite some time. 

As it impacts Ohio, I can’t tell you specifically this early in the 

talks because I don’t know what AT&T has located there. I know 

what SBC has, and I doubt if our workforce is impacted significantly, if at all, in Ohio. 

Senator DEWINE. Let me take advantage of the fact that we have 

the CEOs of four of the biggest phone companies in the country 

23

here to ask a question that may not really have a direct relationship to the merger, but I do have you here and I think it is an important issue. 

As we move and see more and more innovation in the telecommunications arena and develop greater broadband capability, I 

think it is extremely important that we work hard to ensure that 

the disabled are not left behind. As we make broadband and improve Internet applications, we should be able to come up with better mechanisms to include the disabled in the communications revolution. 

Let me ask each one of you if you could address this question, 

and that is what are you doing and what can we all do as policymakers to take steps toward this specific goal? How can we use all 

this technology to serve constituencies with different needs and 

help customized products so that many different people can use 

them? 

Mr. Whitacre? 

Mr. WHITACRE. Well, I think the new technology is going to enable us to do that, Senator. I can’t speak to all the specific ways, 

but certainly voice over IP lends itself much more than circuitswitching does to uses of all people of the United States, be it disabled, be it whatever. 

I don’t know some of the new uses. Perhaps some of the other 

participants do, but I think it does give us the ability to move 

things around, change things, switch things, have broadband access, wireless broadband access, which certainly in itself might be 

a terrific way for the disabled, and that is right around the corner. 

So I think the era we are moving into lends itself very much to do 

more in that, and SBC has always been a greater supporter of that. 

Senator DEWINE. Mr. Seidenberg. 

Mr. SEIDENBERG. Yes, sir, just two points. We have a good record 

in this area. We have a disabilities center that we have in the East. 

We opened one in the West, so we serve customers directly out of 

these centers. 

I would make the point that a company of our size and scale has 

the financial capacity to address these markets. These markets are 

important to us. People believe that, given our brand and our position, that we should address these markets. We have the financial 

capability to do so. 

For the past 22 years, chasing all these new entrants in the business, I don’t ever remember a new company coming into the marketplace and saying we are going to compete in the disabled market. So I think that one of the things that we want to do is to the 

extent that we can continue to create the financial capacity to address the markets, the disabled market is one we will always keep 

our eye on. 

Senator DEWINE. Mr. Dorman. 

Mr. DORMAN. I think the promise of being able to fungibly take 

text and speech and voice and interact them is an important attribute for various disabilities, the point being if you can type, you 

can communicate. If you can speak, but not see, you can be able 

to communicate your words and have them translated into text for 

other people. So the mixing of media between e-mail and voice is 

going on right now. 

24

This so-called unified messaging capability, as Ed suggests, 

comes together with voice over IP very nicely because the interface 

is typically something as simple as a Web page, where you can listen to your e-mail, you can listen to a voice mail and you can translate. So we are moving that ahead. AT&T actually holds a significant amount of intellectual property on speech processing, which is 

a very important part of this. 

Mr. CAPELLAS. Just to echo Dave’s point, we also have a center 

in California which is for the hearing-impaired which actually will 

take speech to text and text to speech. So if you have a call that 

you can’t hear, you will send it in, it will be translated and go back. 

I think there is tremendous progress being made in the area of 

linguistics. Particularly for those who have English as a second 

language, it can be deployed over networks and you see that happening. There is voice activation and all the voice activation that 

goes with it. 

There is a new thing that is being deployed over networks which 

is called pace-based training for those people who may not have the 

same skills educationally to be able to actually have educational 

programs at a different pace, which is actually starting to revolutionize some things in education. 

There is another one I think we can all do. When you create an 

environment of a diverse workforce, you will find that those attitudes actually create environments where people will think of 

things that are not normal to them. I think just promotion of diversity in your workplace probably does more to let the creativity out 

than probably anything we can do, because creative people will 

come up with creative ideas. 

Senator DEWINE. Good. Well, I appreciate your statements, all 

four of you. This is something that this Subcommittee will continue 

to look at. To state the obvious, the new technology that you all are 

engaged in and what your business is all about provides just wonderful opportunities for people today that we couldn’t have envisioned 10, 15 years ago, maybe even 5 years ago. It presents just 

tremendous opportunities for people to improve the quality of life, 

and we would encourage you to continue to make that part of what 

you do and part of your mission. Mr. Seidenberg, I think, speaks 

very well of looking at that as part of the mission, being big enough 

to do it and carry it out, and we appreciate it very much. 

Senator Kohl. 

Senator KOHL. Well, I think you guys have done a really good job 

here. It has been informative. I think about the National Press 

Club, which is an organization here in Washington that has influential and important people like yourselves to speak before the 

group. After the speech and the questions, which are all quite serious, there is a final question which is serious but somewhat humorous. 

I would like to ask all four of you, in the event that this merger 

goes through, which of you gets the dinner and the gold watch and 

which of you gets the corner office? 

[Laughter.] 

Senator KOHL. I appreciate your answer. 

[Laughter.] 

25

Senator DEWINE. We appreciate your answers very much. Thank 

you very much. Well, we appreciate you being here. I think this 

hearing has given us a good opportunity to examine some of the 

important antitrust and competition issues raised by these mergers. 

As we have discussed, most of the antitrust issues really appear 

to be in the enterprise market, and I anticipate that the Antitrust 

Division will examine those and other antitrust issues as it looks 

at these deals. Further, this hearing has been useful in exploring 

some of the larger competition issues regarding intermodal competition and whether that is going to be sufficient to protect consumers and competition in the future. 

Clearly, this Committee is going to need to consider how we can 

play a role in making sure that intermodal competition is a part 

of the competitive landscape in the years ahead. Along those lines, 

as I mentioned in my opening statement, the Antitrust Subcommittee will hold a follow-up hearing on April 19. We will at 

that time hear from some of those who have expressed concerns 

about the mergers. I hope that after hearing from them, we will 

have a fuller understanding of some of these complicated technical 

and telecommunications issues, and can decide what steps to take 

moving forward. 

Before I close this hearing today, I would like to thank each of 

our witnesses for their patience. We were trying their patience and 

everyone in the audience’s patience here today, and the press corps. 

We thank them. It has been a long day and the hearing certainly 

did not proceed as smoothly as we would have liked, but all of our 

witnesses have been very gracious, very professional in their testimony, and really have greatly contributed to this Committee and 

to this Congress’ understanding of the mergers and of the marketplace and how it exists today. So we thank them for their time. 

This hearing is adjourned, and we look forward to continuing to 

explore the issues on April 19. Thank you. 

[Whereupon, at 5:27 p.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

[Additional material is being retained in the Committee files.]

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