Qwest's CEO Dick Notebaert was irate, releasing this press statement: "Qwest maintains that it would be better for the industry to have three major telecom companies -- SBC-AT&T, Qwest-MCI and Verizon. ... It's a public policy issue, I don't think we want a duopoly." The loss of the deal was confusing to Notebaert, who referred to the bidding process as "permanently skewed against Qwest." MCI, for its part, did not go into detail about why it chose Verizon over Qwest, telling the press only that they were "under pressure from some of its business customers to accept Verizon" and that, apparently, "Some had requested rights to end their contracts with MCI if it merged with Qwest." Whatever the reason, it had to be more compelling than a billion and a half dollars.

When the Department of Justice reviewed the massive Verizon/MCI merger, and the earlier SBC/AT&T mergers, it did not require divestiture of any lines. A distinct contrast with the restrictions the Justice Department had leveled on the much smaller Qwest/Allegiance deal. Indeed, Comptel, which represents competitive telecommunications policy interests, argued against the mergers in part because of the Justice Department's failure to follow its previous ruling in the Verizon/MCI and SBC/AT&T mergers.

Rebuilding the Telecommunications Empire

While other telecommunications companies have consolidated with a hefty push from the Justice Department, Qwest has fought an uphill battle to remain afloat. This is in direct contrast to the department signing off on the $86-billion merger of AT&T and BellSouth without so much as a single regulatory condition.

The merger created the largest company in America and one of the largest companies in the world, but when the Department of Justice conducted its regulatory analysis, it concluded that there were no real antitrust issues. This came as quite a shock to those in the FCC who were used to the Department of Justice at least paying lip service to modest regulations in order to keep the merger machinery running without undue questioning. The merger was opposed not only by consumer interest groups but other telecommunications companies that rely on the special-access circuits controlled by a vanishing number of telecom giants like AT&T. Companies like Broadwing and XO need access to shared circuits in order to support business customers and survive a situation in which they could effectively be muscled out by monopolistic control.

Larry Strickling, former chief of the FCC Common Carrier Bureau, and Broadwing executive says that the outcomes of the MCI/Verizon deal and the AT&T/SBC deal "struck people as very odd and counter to standard DoJ analysis and interpretation." After those mergers went through, the floodgates were opened.

Says Strickling: "The company that I worked for at the time of those two mergers is Broadwing, and Broadwing was quite concerned about those mergers. We, along with a lot of other companies, were trying to push both the DoJ and FCC to perform traditional antitrust analysis and require certain divestitures as part of the deal and obviously we were not successful in convincing either agency to do its job."

When asked about the DoJ's differing standards for requiring divestiture of lines for Qwest but not Verizon, Strickling simply says, "It was an aberration, but we're coming to expect more and more aberrations these days."

Despite these concerns, the Department of Justice continues to assert that it sees absolutely no problem with the merger. While it's no secret that there is a highly anti-regulatory administration in the White House, the fact that the DoJ has been so intractable in the face of such opposition signals that there may be more than free-market fundamentalism behind the push.

Both FCC officials (one Republican and one Democrat) I spoke with made it clear that the DoJ's behavior in pushing through the merger had left them in a difficult position -- not to mention a tense negotiation. Without a proper DoJ analysis, FCC officials have been left holding the bag.

The pressure only increases as the number of telecommunications companies has dwindled. 2005 saw the unions of SBC/AT&T and Verizon/MCI. With the BellSouth/AT&T merger, consumers are left with AT&T, Verizon and the comparatively tiny Qwest. Government contracts with telecommunication companies are a multibillion-dollar business with both telecoms and politicians eager to remain in each other's good graces; it's a tightknit old-boys network of governmental officials and telecom executives.

It comes as no surprise, then, that two of the companies implicated by the USA Today article for participation in data mining were AT&T and Verizon, headed by (recently retired) Ed Whitacre and Ivan Seidenberg, respectively. The two have close ties to the White House and contributed heavily to Bush's re-election campaign. The timing of the contributions is important as both Whitacre and Seidenberg sought substantial mergers during Bush's second term, for which Whitacre raised at least $200,000 and Seidenberg at least $100,000 -- far outstripping their year-2000 contributions.

Since Bush's re-election, the telecommunications industry has experienced a scale of mergers and consolidation that hasn't been seen since the days of Ma Bell. The Department of Justice (headed by longtime Bush ally Alberto Gonzales) has fallen into line, taking an increasingly hands-off position on antitrust reviews (except, of course, for Qwest). Indeed, more than hands-off, the DoJ antitrust division has been working to promote legislation that would make it easier for the newly merged AT&T to control various markets. In an April 30, 2007, letter, the DoJ antitrust division contacted Wisconsin state Sen. Jeffrey Plale (though it spelled his name incorrectly as "Pale"), expressing support for a bill that would make it easier for AT&T to enter the market with its new video service -- effectively eliminating municipal cable franchises and putting the approval process in the hands of the state.

As mentioned before, government contracts provide critical telecommunications revenue. Barry Steinhardt, director of the ACLU's technology and liberty program, says it is through government contracts that the White House is able to throw its weight around. "I presume that there's some payment that's being made for the construction of facilities providing connections between the offices and the NSA. But the more important money here are these huge contracts with the federal government." It seems that, in addition to contracts, pushes for favorable litigation are also afforded.

Spy Consolidation

While it's clear what telecoms get out of this cozy relationship, the real story is perhaps what the Bush administration is getting in return -- apart from some campaign cash. With the president's favored companies gobbling up the competition, the government's spy program has access to a substantial amount of the telecommunications backbone -- cable that is shared by multiple companies. As Steinhardt explains, "That means that the government can get access to the communications of customers from many different companies." What Americans are facing is not only consolidation of telecommunications companies, but a consolidation of the government's ability to spy on communication records.

In FCC Chairman Kevin Martin's press release announcing the merger, he cited national security as one of the critical justifications for approval: "The merger ... will enhance national security by creating a stronger and more efficient U.S. supplier of critical communications capabilities." Martin peppered his release with references to national security, conspicuously avoiding details. Another excerpt from the document states that "Broadband deployment to all Americans remains one of the highest objectives for us at the Commission. This deployment is critical to our nation's competitiveness in the global economy and to our national security." Neither of the Democratic commissioners, Michael Copps and Jonathan Adelstein, mentioned national security in their press releases regarding the merger.

Despite public concern about the security of consumer information, Martin emphasized that the merger will enhance national security "through the creation of a unified ... network capable of providing efficient and secure government communication." It's notable that in a public FCC press release, Chairman Martin all but put the seal of approval on the new AT&T serving as the government's secure network.