^{Democracy & Technology Blog} Time to wrap up merger proceedings

Telecom merger opponent ACTel trumpeted the results of a survey it commissioned of telecom managers at Fortune 1000 companies who are customers of AT&T or MCI. ACTel claims its survey shows that roughly two thirds of the managers express concern about the mergers. The timing of the survey suggests that that the merger approval process is entering a critical phase. For ACTel and a few others, the mergers are an opportunity to: (1) Force SBC-AT&T and Verizon-MCI to divest valuable network assets and enterprise accounts at bargain basement prices and (2) Roll back some of the recent efforts by the FCC to reduce harmful regulation.

AT&T and MCI largely abandoned their efforts to compete in the mass market, so the mergers will not substantially lessen competition for consumers. The relevant product market for purposes of this debate is large and medium enterprises, i.e., corporations who have telecom managers and budgets for consultants. These customers can take care of themselves. AT&T and MCI still have extensive portfolios of profitable enterprise accounts, which were built up before competition from wireless, VoIP and the regional telephone companies. The distinction between local and long-distance means nothing today. The same is true of voice and data. That’s why AT&T, MCI and other one trick ponies are finding it difficult to carry on. In fact, AT&T and MCI were probably no longer sustainable. The FCC and the Antitrust Division must not overlook this, nor the fact that these mergers are needed to enable the carriers to reduce unnecessary costs and ramp up investment in innovation.

The danger is that the merger review proceedings offer unparalleled opportunities for competitors to try to expropriate the merger synergies. The FCC is under no statutory deadline to approve or disapprove a merger application, and the agency has found it convenient in the past to sit tight and wait for the politics to settle. FCC merger proceedings, observed former House Commerce Chairman Billy Tauzin, “can leave applicants slowly twisting in the wind to be picked apart by both regulatory enthusiasts and private party shakedown artists.” Merger applicants such as SBC-Ameritech were forced pry their applications loose by cutting deals with their rivals. The deals were called “voluntary conditions,” and they went beyond what the FCC could have imposed on the industry by regulation. The self-serving rhetoric of some industry participants reveal that they may be determined to take the agency down this road again.

There was some good news this week: FCC Chairman Kevin Martin is reported to have instructed his staff to begin drafting approval orders.