Friday, January 28, 2005 - The Progress & Freedom Foundation Blog

Bell-AT&T Mergers: Who's "Unthinking" Now?

Ray is right to point out the important ways in which a Bell-AT&T merger may no longer raise the same monopoly fears it once did, particularly as one contrasts the current structure of the market with cirucmstances when Ma Bell was divvied up over two decades ago. What puzzles me is the most recent resurrection of the descriptor "unthinkable," as in "such a proposed merger would so undermine public policy goals that that it is unthinkable and, thus, should be rejected before it gets filed."

The term "unthinkable" might (and perhaps should) be dismissed as a catchy -- and therefore quotable -- confection for the press to sample. But to the extent folks rely on it to contribute to meaningful policy debate, that reliance is, at best, misplaced.

As I have emphasized on another issue, serious scholars of competition and antitrust have long emphasized the benefits to consumers of so-called "vertical relationships," where the two companies provide complementary but not identical services. A merger between a Bell Company and AT&T would involve such complementary services, e.g., the Bell company's local phone service and AT&T's long distance service. Although there are important exceptions to the general rule that these relationships can benefit consumers, those exceptions can't be discerned fully without reviewing the facts of a proposed merger. Hence, to the extent calling something "unthinkable" tends to obviate such fact-finding, it hurts, rather than helps, the policy debate.

More troubling is the way the term "unthinkable" has been used recently to suggest that, if a Bell-AT&T merger raises no monopoly concerns today, it is the result of flawed policies at the FCC under Chairman Powell. One such policy is the FCC's preference for telephone competition among providers that rely on their own networks. This preference, it is argued, has weakened companies like AT&T so much that merging them with even a big Bell company raises no anticompetitive concerns. But the FCC stated this preference for so-called "facilities-based" competition when the FCC was still under the prior Administration, and certainly the courts have insisted that the FCC follow that approach. Given that kind of guidance over several years, perhaps it was AT&T's contrary business strategy and not the FCC's policy that was lacking.

Another supposedly flawed FCC policy concerns its approach to mergers. In particular, some have suggested that the current Chairman has been too soft on mergers because he has spoken out against imposing some merger conditions. This also seems misleading. The FCC just approved the Cingular-AT&T Wireless merger subject to some conditions that all five commissioners approved. What Powell has opposed are merger conditions that do not correct the potential harms previous Commissions have identified. His point (a good one) is that it can't be in the public interest to approve a merger that will result in uncorrected harms; if regulators believe a merger raises risks to consumers that can't be fixed by imporsing conditions on the transaction, they have a duty to block the merger. And that is what the FCC did with respect to the proposed Echostar-DirecTV merger. Ironically, rejecting a merger is a feat the Commission had not managed for the prior 30 years, a period that comfortably includes the fateful day "unthinkable" was first applied to telecom mergers.

So to the extent serious analysts are focusing (again) on "unthinkable" as anything more than a clever sound bite in the merger review context, one might ask: who's "unthinking" now?

posted by Kyle Dixon @ 10:52 AM | Communications