WASHINGTON-While government approval of the proposed $35 billion Sprint Corp.-Nextel Communications Inc. deal and other pending telecom mega-mergers do not appear in doubt, there is a lively debate going on about the adequacy of long-standing antitrust law in the face of consolidation, convergence, innovation and a controversial Supreme Court ruling last year.
Talk of antitrust reform picked up during the 1990s as an outgrowth of the dot-com boom and the Justice Department’s antitrust suit against Microsoft Corp., the world’s largest software company. The Justice Department subsequently settled with Microsoft in 2001. The litigation brought into clearer focus fundamental questions about antitrust policy, including whether being big was indeed bad and necessarily inconsistent with consumer welfare.
But there is a universe of antitrust issues that go beyond those prompted by the Microsoft case and the rise of the Internet. A panel created by Congress in 2002 is examining many of these issues. The Antitrust Modernization Commission is set to hold it first meeting June 27 at the Federal Trade Commission, which shares antitrust oversight with the Justice Department.
In telecom mergers, the Federal Communications Commission plays a major role insofar as antitrust and public-interest analyses. That has made the agency a target for critics who favor restricting jurisdiction to Justice and the FTC.
When the FCC has tried to determine whether a proposed merger will have public-interest benefits, according to Progress & Freedom Foundation senior fellow Randolph May, “the commission has gone astray.”
The Antitrust Modernization Commission is examining a wide range of topics, including merger review and enforcement, legal remedies, the role of states, and the applicability of antitrust doctrine to industries in an increasingly knowledge-based economy.
The anti-trust review is taking place as Congress considers an update to the 1996 telecom act and as telecom competition envisioned by the landmark legislation succumbs to massive consolidation. AT&T Corp., broken up into different pieces in 1982, is being swallowed by one of its beefed-up offspring, SBC Communications Inc., for $16 billion. Meantime, SBC competitor Verizon Communications Inc. is absorbing long-time AT&T long-distance rival MCI for $8.5 billion.
With the expected completion of the Sprint-Nextel merger later this year, the original six national wireless carriers will be reduced to four-still making the mobile-phone business more competitive than most telecom sectors.
The major telecom mergers being reviewed by government antitrust lawyers are part of a bigger story: a dramatic wholesale transformation in which the lines separating telecom, high-tech and media sectors are blurring in a global marketplace that values the economic might of subscriber-filled networks, intellectual property and data-rich content. Wireless and Internet technologies have all but ruined the long-distance business and now are creating havoc for local landline telephone carriers.
“The broader point for public policy is that convergence makes it difficult to assess the competitive effects of consolidation. Both the definition of the product market and the identification of suppliers of the product have become a great deal more difficult,” Philip Verveer, a telecom lawyer and former Justice Department official in the AT&T breakup case, recently told the House Judiciary Committee. Verveer represents Sprint in the proposed merger with Nextel.
It is a more complex world, perhaps too much so for existing antitrust law.
“The biggest anti-competitive threat to the tech-com world is not pricing power (prices are plummeting from Internet Protocol) substitution, but subtle and naked attempts to gain market power by impeding or denying interconnection or network access for the purpose of competitive advantage,” said telecom analyst Scott Cleland of Precursor in congressional testimony last month.
Cleland’s advice: “Don’t re-fight yesterday’s antitrust war; prepare for the future.”
For Verveer and others critical of a 2004 Supreme Court decision that limited antitrust action against regulated monopolies like Bell telephone giants, keeping anticompetitive tendencies in check will be more difficult in the future.
“The availability of the antitrust laws, and especially of the Sherman Act, to protect the competitive process in telecommunications is as important today as it ever has been,” said Verveer. “Recent judicial decisions have tended to diminish our ability to rely upon the Sherman Act. This is an issue that should be a priority in connection with any legislation or oversight involving the communications industries.”
Robert Bork, ex-Supreme Court nominee and an antitrust expert, told the Antitrust Modernization Commission that large-scale reform is unnecessary. “The antitrust laws, in my opinion, are performing well, in fact better than at any time in the past 75 years.”