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And Then There Were 2

Consolidation will leave large companies with only two telecom choices

For large companies, the telecommunications industry is consolidating down to the Big Two.

Verizon Communications' decision last week to acquire MCI for $6.7 billion came two weeks after SBC Communications said it will buy AT&T for $16 billion. In each case, one of the largest regional telecom companies is buying one of the nation's top long-distance operations, creating two companies that will be able to offer wired and wireless voice, data, and video services over local, national, and global networks. The four took in 56% of the $138 billion companies spent on business communications last year, according to the Yankee Group.

SBC and Verizon are using the deals to buy their way into the business market. AT&T has around 3 million business customers; MCI has around 1 million. SBC and Verizon have lacked the reach and services to win many nationwide contracts from large companies. "Outside of the big two, there is no competitor out there that a Fortune 1,000 company will move all of their traffic to," says Gartner VP and research fellow Ken McGee. "We are entering a period where we might actually see rates rise again."

Still, Verizon's move to buy MCI "creates a much stronger battle between the big two," says David Willis, a VP at research firm Meta Group. "There will still be many aggressive alternative carriers in the market to provide additional competition."

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