Hell's Bells.

• Author: Glassman, James K.
• Position: Brief Article

The Telecommunications Act of 1996 was supposed to open up the local phone loop and end the so-called Baby Bells' monopolies. Instead, the Bells filed lawsuits to protect their privileges, then dragged their feet; now they're appealing to politicians for help. The result: more monopolies. In 1996, there were eight local companies--the seven Baby Bells plus GTE. Now there are only four. Verizon--a combination of BellAtlantic, Nynex, and GTE--had $65 billion in revenues in 2000, up from $13 billion in 1996. SBC Communications--formed from Southwestern Bell, PacTel, and Ameritech (the Bell of the Midwest)--has a market capitalization of more than $160 billion, twice that of AT&T.

These companies monopolize the last mile of telecommunications into the home, a status protected by state regulators. As a result, they have steadily increased their returns. Even Bell South, a relative laggard, had a 26 percent return on equity in 1999, compared with 13 percent as recently as 1993.

Further evidence that the Bells are winning a war of attrition came after Thanksgiving weekend. Covad Communications Group, one of the largest upstarts to enter the high-speed Internet data transmission market, announced not only that it was laying off 400 workers, but also that it would stop building out its DSL network. Analysts are predicting that data communications will grow at an annual rate of 70 percent over the next few years, and the high-speed service Covad provides seems like just what people want. Yet the one-time darling of investors has seen its stock plunge 93 percent in the past year. In an attempt to stay in business, it has sold a 6 percent stake to...