WASHINGTON-The Bush administration is unlikely to stem the tide of telecom mergers headed for the Department of Justice and the Federal Trade Commission in the next four years and may be reluctant even to block monopolistic market formations in the ever-changing high-tech industry, according to antitrust experts and other sources.
The makeup of Bush’s antitrust team has major implications for the wireless industry and other telecom sectors as executives develop business strategies to compete in a global Internet economy increasingly shaped by technological convergence.
Fast-changing technological advances and complex market shifts that are not fully understood have challenged traditional antitrust analysis in recent years.
Congress and federal regulators have attempted to address New Economy antitrust issues as local landline monopolies, long-distance giants, national wireless carriers, cable TV operators, dot-coms and others attempt-with varying degrees of success-to combine forces.
As telecom and high-tech firms merge and create multimedia platforms with multiple revenue streams, the Bush administration will be forced to grapple with a relatively novel antitrust challenge in the digital age known as “network effects.”
The network-effects theory says the value of a given network increases with the addition of new users. That description tends to characterize a lot of what the New Economy is about.
The big challenge for Bush antitrust specialists will be to assess the market power posed by vertically integrated mergers that expand size and add value to high-tech networks. There has been a pendulum swing in antitrust policy the past two decades. After a hands-off approach during the Reagan administration, the succeeding Bush White House took a more serious approach to antitrust oversight. The Clinton administration took it a step further by putting nearly all its energy into the antitrust case against the biggest high-tech firm on earth: Microsoft Corp. At the same time, Clinton antitrust lawyers approved every merger among Baby Bells. They only drew the line when SBC Communications Inc., one of recombined Bells, sought to merger with long-distance leader AT&T Corp. and when the nation’s No. 2 and No.3 long-distance carriers, WorldCom Inc. and Sprint Corp., wanted to join.
The White House is well on its way to filling the top two antitrust posts in government, all this against a backdrop of two key developments-the approval of the America Online-Time Warner merger and the appeal of the court-ordered breakup of Microsoft Corp. Each event, in its own way, is likely to shape antitrust policy for years to come.
Thomas Hazlett, a resident scholar at the American Enterprise Institute, said if the federal appeals court here overturns the lower court’s Microsoft breakup ruling-as some observers increasingly are speculating-it could set the tone and tenor for antitrust policy for the rest of the Bush administration.
“I think it will color antitrust for the next four years. I think there will be a permissive attitude” and “a softening to antitrust enforcement,” said Hazlett.
At the same time, Hazlett and others said Bush’s picks for DoJ and FTC are mainstream antitrust lawyers yet ones who, for example, might be less inclined than former antitrust czar Joel Klein to go after a Microsoft or other dominant digital firms absent a convincing showing of consumer and competitive harm.
Last month, President Bush nominated antitrust lawyer Charles James-long-time outside counsel to Nextel Communications Inc. who previously worked at DoJ and the FTC-to head the Justice Department’s antitrust division.
James, currently a law partner here with Jones, Day, Reavis and Pogue, served two years in Justice’s antitrust unit as acting assistant attorney general from 1991 to 1993.
James and the Jones, Day law firm played a key role in helping Nextel-the nation’s dominant dispatch radio operator-get out from under a 1995 antitrust consent decree that was shortened by five years after a controversial settlement with the Justice Department two years ago.
James also spent six years in a variety of positions with the FTC from 1979 to 1985.
“He is very smart, very hard working. He’ll really gets into the facts and issues,” said Phillip Proger, an antitrust lawyer who works with James at Jones, Day. “I think he is about what I would describe as core values. He will enforce antitrust laws, and is not likely to make it up as he goes along.”
Attorney General John Ashcroft also had high praise for James.
“Charles has an enormous amount of experience in the antitrust field, as well as an impressive background in government,” said Ashcroft. “His previous leadership experience in the antitrust division and his extensive expertise in antitrust law make him a perfect choice to guide the division in today’s global economy.”
Proger agreed, saying James’ high-tech law background and government experience will help deal with New Economy antitrust issues.
Like James, Bush’s likely pick for FTC chairman-George Mason University law professor Timothy Muris-has a strong antitrust background in government.
Muris served as director of the FTC’s bureau of consumer protection and headed the agency’s bureau of competition during the previous Bush and Reagan administrations. Before joining George Mason University in Northern Virginia, Muris was executive associate director of the Office of Management and Budget from 1985 to 1988.
Muris also taught law at the University of Miami and was a law and economics fellow at the University of Chicago.
In recent years, Muris has been a harsh critic of FTC and its chairman, Robert Pitofsky. The FTC, under Pitofsky, has taken a keen interest in high-tech antitrust generally and in digital privacy issues-including wireless-specifically.
In a paper last year titled “The FTC and the Law of Monopolization,” Muris provides more than a glimpse of the kind of antitrust philosophy that could prevail in the Bush administration.
Taking aim at Pitofsky’s view that high-tech firms-in part because of network effects- may have market power exceeding even that of Standard Oil a century ago, Muris wrote: “Although the strong network effects theory emphasizes the difficulty that even a superior technology has in replacing a `locked-in’ one, evidence of change is everywhere. … Several aspects of competition in high technology industries make lock-in of inferior technology unlikely. In the fierce competition for leadership that frequently occurs, the old technology may have only its large customer base as the source of its dominance, not the scale of economies that facilitate dominance in some more established industries.”
At the same time, Muris apparently does not give the impression he believes DoJ and the FTC exist to rubber stamp mega mergers.
The breakup of AT&T was a major triumph of government policy against anticompetitive monopolization,” Muris concluded. He added: “Monopolization cases should continue. Given our ignorance about the sources of a firm’s success, however, they must necessarily be wide-ranging in questioning whether conduct at issue in fact created, enhanced, or preserved monopoly, whether efficiency justifications explain such behavior, and all other relevant issues.”
Muris and James did not return calls for comment for this article.
As far as whether a new antitrust paradigm is needed for New Economy mergers, Proger of the Jones, Day law firm, replied, “I think the [existing] model still works, and what’s the alternative?”
