WASHINGTON-Justice Department antitrust czar Joel Klein, sending a mixed message, predicts Baby Bells will face local competition from wireless and wireline firms over time, even if mega-mergers among dominant telecom players are approved.
Pointing to forces of deregulation, technology and globalization that are driving telecom companies to position themselves for the next 20 years and to the increasingly difficult job of analyzing high-tech deals, Klein said, “I have no doubt that a significant number of mergers in this highly dynamic economy are going to go through.”
At the same time, Klein, in recent remarks at the American Enterprise Institute, cautioned against reading anything into whether Justice will OK pending multibillion dollar mergers between AT&T Corp. and Tele-Communications Inc.; Bell Atlantic Corp. and GTE Corp.; and SBC Communications Inc. and Ameritech Corp.
“My view is the solution to this (consolidation trend) is alternative technologies, whether it’s wireless, whether it’s cable, whether it’s satellite…,” said Klein. “And I believe that will happen.
“But that doesn’t mean that in the meantime, if that happens, then the wire problem will no longer be a problem. There will be an alternative means of access. But when one is looking at a policy matter, one wants to have more than one iron in the fire.”
Klein, a former Clinton White House lawyer, said every proposed telecom deal is extensively reviewed in terms of the parties’ business plans, potential competition and the outcomes of past mergers that have passed muster with Justice.
To date, Klein has approved all mergers involving Baby Bells while taking a hard line against Microsoft Corp.’s dominance in the computer industry and against an earlier Blockbuster video deal that eventually collapsed because of Justice’s opposition.
The impact of telecom mergers involving large wireless properties has been largely minimized by the Federal Communications Commission spectrum cap. The cap, which the agency is considering liberalizing as facilities-based wireless competition takes hold, limits any one commercial wireless carrier from holding more than 45 megahertz in a market.
Klein said Baby Bell lawsuits against the 1996 telecom act represent a calculated business decision in favor of keeping competitors out of local markets rather than entering the local-distance market. But, he noted, the Bells litigation strategy to delay local competition appears to be running out of steam and he believes the telecom statute will stand.
As such, Klein said the telecom act should not be overhauled.
Klein said the “network effects” theory will become increasingly important to antitrust analysis. The theory holds that as more people join the network the network becomes more valuable and, thus, more important as a factor in the competitive equation.
For example, Justice’s requirement that MCI Communications Corp. sell its Internet business as a condition to merging with WorldCom Inc. was based on the fact both entities held strong market positions in Internet backbone business and together could leverage those positions in an anticompetitive manner.
James Olson, a communications lawyer who specialized in antitrust under former FCC Chairman Reed Hundt, said he was a little surprised at some of what Klein said.
“I think the standard antitrust principles are still there,” said Olson. Regardless of rapid changes in technology, he explained, a high-tech firm still could secure a monopoly position in the marketplace. Olson pointed to Microsoft as a prime example.
However, Olson agreed today’s pending telecom mergers would be approved. He added that the antitrust theory of potential competition will become more difficult to use as a basis for blocking telecom deals in the future.
Thus, according to cutting-edge antitrust experts, the trend in antitrust law appears to be that big is not necessarily bad if big translates into efficiencies and consumer benefits. Big is the reality in a global economy, most observers have conceded.
The challenge for policy makers in the future may be figuring how many telecom behemoths constitute a competitive market.
