Telecommunications Mergers Under Fire: Competition vs. Concentration

Strategic Insights -

The Federal Communications Commission held a hearing to discuss three proposed telecommunications mergers worth a combined $140 billion, sparking concerns about the industry's shift from promoting competition to concentration. The mergers, involving SBC Communications, Ameritech, Bell Atlantic, and Tele-Communications Inc., could reshape the ownership of local and long-distance telephone services in the United States. Consumer groups and rival companies questioned whether the deals would stifle competition and limit consumer choice, citing the Telecommunications Act of 1996, which aimed to promote competition in the industry.

Key Takeaways:

  • The proposed mergers, valued at $140 billion, could lead to a reduction in competition in the local telecommunications market, potentially limiting consumer choice and pushing prices up.
  • The Federal Communications Commission (FCC) is reviewing the deals, with staff members questioning the details and suggesting that severe conditions may be imposed on one or more of them.
  • Consumer groups and rival companies argue that the mergers will consolidate control in the hands of fewer companies, reversing progress made in promoting competition since the Telecommunications Act of 1996.
  • Companies defending the mergers claim they need to combine to promote competition, enter new markets, enhance services, and keep prices down.
  • The proposed acquisitions have also been examined by antitrust regulators at the Justice Department, who were criticized last year for approving previous mergers.
  • The FCC's chairman, William E. Kennard, stressed that the agency must review the deals in light of the "public interest," but the definition of this term is still unclear and will be determined in the coming months.
  • Several companies' customers and competitors, including Sprint Corporation and MCI Worldcom, have urged the FCC not to allow local and long-distance phone service to be controlled by even fewer companies.
  • The mergers would reduce the number of regional Bells to only four (SBC Communications, Ameritech, Bell Atlantic, and Pacific Telesis), which was established in the 1984 breakup of AT&T.
  • Competitors argued that companies like SBC and Ameritech can compete without merging, and that re-creating a Ma Bell-style monopoly would harm consumers.

Statistics:

  • The proposed mergers are worth a combined $140 billion ($56 billion for SBC Communications' acquisition of Ameritech, $52 billion for Bell Atlantic's purchase of GTE, and $32 billion for AT&T Corporation's purchase of Tele-Communications Inc.).
  • The number of regional Bells could be reduced to only four (SBC Communications, Ameritech, Bell Atlantic, and Pacific Telesis), established in the 1984 breakup of AT&T.
  • The Telecommunications Act of 1996 was passed by Congress and signed by President Clinton to promote competition in the telecommunications marketplace.
  • The act erased decades of laws, regulations, and court decisions that had put sharp limits on new entrants and established companies expanding into new services and regions.

Sources:

  • [The New York Times, October 1998]