Thursday, October 20, 2005 - The Progress & Freedom Foundation Blog

Merger Extortions in California

Anna-Maria Kovacs's invaluable regulatory report details California's de facto merger taxes on the SBC-ATT and Verizon-MCI mergers:

· The companies have agreed to increase corporate philanthropy to low income and underserved communities in California over five years, SBC by $47 million and Verizon by $20 million. Both companies have also agreed to increase supplier diversity and to provide technical assistance to minority businesses. · The companies would be required to help increase broadband deployment in the state by contributing a total of $60 million to the California Emerging Technology Fund.

I am second-to-no one in my admiration of Commissioner Kennedy and her contributions to sane state regulatory strategy, but this can only be evaluated as a dismaying compromise and a bad example of taxation by regulation.

What's more, it creates a terrible incentive system for states reviewing mergers. The California demands, and inevitable capitulation by the merging companies, show that it pays to be the hold-out state, the tantrum-throwing state, the state that demands the most tribute. I'll hazard a guess that none of the some $120 million pledged for approval of the mergers has anything to do with addressing expected competitive harm from the mergers, or anything else having to do with the act of merging itself. An extra-legal merger tax, plain and simple.

posted by Ray Gifford @ 12:07 PM | Wireline