Originally created 10/11/05

Competition restrained by SBC buyout of AT&T



NEW YORK - SBC Communications Inc.'s planned purchase of AT&T Corp. is still awaiting government approval, but it already appears to be reducing competition in a way that might cost taxpayers.

Before the acquisition was announced in January, SBC was aggressively and prominently preparing to bid for a mammoth contract to provide federal agencies with a wide array of phone and data services, a deal that could be worth more than $20 billion over 10 years between the two winning bidders.

SBC quietly and abruptly pulled the plug on those plans not long after agreeing to buy AT&T, a far more seasoned player in the government services market.

Instead, SBC signed on as a subcontractor for AT&T's bid to win the "Networx" contract, leaving four contenders instead of five when the initial bids were due last week: AT&T, MCI Inc., Sprint Nextel Corp. and Qwest Communications International Inc.

The Networx collaboration was potentially tricky because federal law prohibits merger partners from acting as a single company until their deal is approved. SBC and AT&T say their lawyers have monitored all Networx interactions closely to protect against collusive slips.

"This merger is very important to SBC, and we know every decision and every step we take could be closely scrutinized," SBC spokesman Michael Coe said.

However, some consultants in the government telecom market have expressed dismay at SBC's behavior since the AT&T deal, noting that MCI and Verizon Communications Inc. have maintained a more hard-nosed stance as competitors despite their planned merger.

"MCI, while the merger with Verizon seems to be on track, they're doing everything I would expect a competitor to do, including going after customers just as aggressively now as before there was a merger announced," said Lisa Crawford Bruch, who runs a consulting firm named The Crawford Group Inc. "It's that sentiment that's missing in SBC's behavior that's troublesome."

Networx is the third generation of a contract that the General Services Administration launched nearly 20 years ago to group the purchasing power of assorted federal agencies and win a better deal for them all.

By most accounts, the first two GSA contracts saved taxpayers billions of dollars.