WASHINGTON-After AT&T Corp. Chairman Robert Allen two weeks ago threw down the gauntlet regarding the viability of a $50 billion AT&T-Southwestern Bell merger, calling it “not unthinkable,” Federal Communications Commission chairman Reed Hundt countered with the agency’s point of view, telling attendees at a hastily called Brookings Institution briefing June 19 that “a combination of AT&T and a regional Bell operating company is unthinkable.”
Hundt, a former antitrust attorney, has refused until now to comment on the rumored merger talks, which surfaced several weeks ago, but because Allen promoted a hypothetical marriage of his carrier and a regional holding company, Hundt said, “It is right and proper for government to respond to such assertions by trying to give clear guidance to firms about what mergers are thinkable and what are unthinkable in the new world of open communications markets.” Hundt would not comment on whether he had the Clinton administration’s blessing on the FCC’s mega-merger stance nor would he entertain any questions regarding other hypothetical mergers.
While he refused to correlate the pending Bell Atlantic Corp./Nynex Corp. merger with Allen’s request for a “hypothetical discussion” of AT&T consolidating with another major player, Hundt reiterated the commission’s role in ruling on mergers between common carriers, saying that if such a merger were placed in front of commissioners for real, they would weigh the law and the facts. However, there was no sense in wasting time with “what ifs.”
Consumer Union’s Gene Kimmelman thinks Hundt’s comments may not bode well for the Bell Atlantic/Nynex merger, which now is before the FCC for a ruling. He believes Hundt’s views on AT&T/RHC mergers may transfer over to RHC/RHC mergers as well.
Hundt did put AT&T and Southwestern Bell, indeed, all other RHCs, in the category of precluded competitors-companies that would be competitors but have not been allowed to do so because of regulatory constraints and no enforceable competitive rules. AT&T has said it wants to enter the local markets and RHCs have wanted to enter the long-distance market. Hundt pointed out that combining AT&T’s long-distance market share (estimated at 70 percent of the residential market and 40 percent of the business market) with a RHC’s potential long-distance share (between 20 percent and 30 percent, once a market is cracked) “yields a resulting concentration that is unthinkable.” Similarly, an RHC is dominant in the local exchange market, and AT&T has said it could garner one-third of that industry. Hundt also called this combo possibility unthinkable.
In a bundled-service marketplace, where an RHC earns 60 percent of all telecom revenues in any state and AT&T earns 20 percent (excluding access payments), also was deemed unthinkable.
Tripping AT&T up in its own words regarding mergers between interexchange carriers and RHCs-“But most important of all, any partnership between any long-distance company and any regional Bell company would have to be pro-competitive … No exceptions.”-Hundt said any proposed AT&T/RHC merger would not pass this test.
“Contemplating, discussing, negotiating and proposing unthinkable mergers can have negative impacts on competition,” Hundt concluded. “Worse, other unthinkable merger ideas might be pursued in reaction to an AT&T/RBOC merger announcement.”
Reactions to the chairman’s relatively short speech were few at press time. Investment adviser Janney Montgomery Scott believes Hundt is not against all mergers; indeed, the firm believes the Bell Atlantic/Nynex deal will be approved with certain conditions. “We also do not believe that Chairman Hundt’s speech precludes all potential AT&T mergers, merely mergers between AT&T and the major local telcos, especially the Bells,” it wrote. “To cite some obvious possibilities, a merger with a foreign telco or with a satellite-based entrant into the local market or with a major computer company or even with a cable company might well be accepted if it made AT&T a more effective competitor against the incumbent local telcos in the United States.”
