WASHINGTON-The Senate Judiciary Committee last week scrutinized pending mergers involving four of the seven regional Bell telephone companies, setting the stage for a broader debate on whether the new telecommunications law is fostering competition or limiting it.
There are strong views on both sides of the issue in Congress and industry. Wireless technology will play a big role in the new telecom landscape. While competition is increasing within the wireless industry, the technology is poised to cross the wireline boundary and compete in the monopoly local phone market.
Wireless telephony, buoyed by cellular and new personal communications services, could become the first and most fierce competitor to local Bell operating companies. While consolidation has continued in the wireless industry over the past decade, it has been accompanied by infusions of spectrum and regulations that have kept any one company in a given market from holding all or even most of the frequencies.
But that is just part of the picture. It appears the new world order in telecommunications may be dominated by a handful of powerful and diversified titans.
One the one hand, there is concern that in the eight months since President Clinton signed the Telecommunications Act of 1996 into law there have been three mega-mergers and little, if any, new competition in the local monopoly telephone business.
In April, SBC Communications Inc. and Pacific Telesis Group proposed a $14.6 billion merger. Shortly thereafter, Nynex Corp. and Bell Atlantic Corp. announced plans to join forces in a $20.5 billion deal. All four were spun off AT&T Corp. in 1984 and dominate local telephone service in their respective regions.
More recently, Worldcom Inc., the fourth biggest long-distance telephone carrier, agreed to buy MFS Communications for $14.4 billion.
On the other hand, some see mergers as a natural outgrowth of a new environment in which local, long-distance and video service providers compete with each other as an acknowledgement of the growing globalization of the telecom business.
“Mergers are not in themselves anticompetitive,” said Orrin Hatch (R-Utah), chairman of the Senate panel. Hatch said mergers help the U.S. compete abroad and contribute to the one-stop shopping trend that enables consumers to buy local, long-distance, video and information services via wireless, wireline, cable and satellite links.
Two top telecom thinkers said they don’t believe the sky is falling either. Robert Crandall, of the Brookings Institution, pointed out the proposed Nynex-Bell Atlantic merger may not be as dangerous as some say because the companies do not compete with each other. “With so many larger players attacking one another’s turf, it is difficult to see how competition is threatened by these mergers.”
Peter Huber, a senior fellow at the Manhattan Institute for Policy research and a lawyer who has represented various Bell firms, commented that “because digital services are converging so fast, companies can grow and merge while still losing market share. The big are indeed getting bigger, but the market in which they swim is growing even faster.”
But the wave of recent mega-mergers has others worried.
“I want to know why the companies involved feel that bigger is better. I want to know why the companies involved chose to merge rather than to compete,” said Patrick Leahy (D-Vt.), ranking minority member of the Senate Judiciary panel. “I don’t think it’s the kind of one-stop shopping consumers want.”
The three proposed mergers are pending before the Justice Department, state regulators and the Federal Communications Commission. The FCC, among other things, considers the transfer of wireless licenses involved in the transactions.
Dale Hatfield, a consultant and former telecom policymaker, said “the prospects for robust local completion are highly uncertain at best.” He urged lawmakers and regulators to exercise strong oversight while awaiting the transition from monopoly to competitive markets.
A big dilemma facing policymakers and regulators is one of timing. Should the government approve mega-mergers now in the hope competition will develop? If antitrust officials act too soon to block mergers, do they not run the risk of interfering with the development of a market that has had relatively little time to become competitive? Yet, if they wait too long, it might difficult to fix anticompetitive damage from mergers.
Republicans who authored the telecom bill gave the Justice Department virtually no oversight functions outside their existing antitrust functions.
The Clinton administration believes that was a mistake.
The FCC only recently issued interconnection rules to facilitate competition in the local market, a cornerstone of the telecom law. But the agency is far from completing its implementation of the telecom reform bill. Meanwhile, few believe competition will break out in local markets anytime soon.
“If consolidation continues to outstrip the growth of competition, the pro-competitive goals that Congress endorsed in the 1996 Act may not be achieved, and consumers may end up with higher rates and fewer competitive choices,” said Ron Binz, president of the Competition Policy Institute.
Consumer groups have expressed similar concerns.
As such, testimony submitted by industry executives and telecom policy analysts at the hearing both raised and downplayed concerns that have been aired in recent months about the pending mergers.
“The merged company will be better positioned to compete with such telecommunications giants as AT&T (and its merger partner McCaw Cellular Communications Inc.), MCI (Communications Corp. and its partner British Telecommunications plc, Sprint (Corp. and its partners France Telecom and Deutsche Telekom, Tele-Communications Inc., Time Warner Inc.), and many others,” said James Ellis, senior vice president and general counsel of SBC.
James Young, general counsel of Bell Atlantic, said the merger with Nynex “will clearly not recreate the old Ma Bell.”
