Antitrust enthusiasts thought they scored a coup in 2004 when they persuaded Congress to encourage the courts to conduct more assertive reviews of corporate mergers (with rights of participation for gadflys, busybodies and others) pursuant to the Tunney Act (see my previous post). Apparently, the move was too clever by half. The Antitrust Division sidestepped this feature of the Tunney Act completely by approving the AT&T-BellSouth merger with no conditions. The New York Times claims the Bush Administration has abdicated its responsibility to act as a “referee,” as if one is needed. The newspaper complains the administration hasn’t brought a single major monopoly case under the Sherman Act, as if that proves anything. Most amusing of all, it notes that career officials were “demoralized” when the administration cleared Whirlpool’s acquisition of Maytag, inferring this could happen again. The Times didn’t explain the relevence of that. Apparently, some believe, bureaucrats ought to be able to perform their jobs as they see fit, or at least their judgment is superior to elected politicians or officials who’ve been confirmed by the Senate.
The Antitrust Division made the right decision. There is practically no competition between AT&T and BellSouth. Out of an estimated 219,000 buildings in the BellSouth region, about 32 in Atlanta and Miami are: (1) served only by BellSouth and AT&T (and thus would go from 2 providers to 1 provider when this merger goes through) and (2) could be considered, under present conditions, uneconomical for competitive carriers to connect to their networks. But the competitors can obtain UNE loops enabling them to serve nearly two-thirds of these buildings with minimal, if any, additional investment.
The merger is good for consumers because the combined company will be able to invest more in broadband in the Southeast. The companies claim that BellSouth is investing $2.2 billion over a five year period to upgrade its broadband network, but that BellSouth hasn’t invested in hubs for video services, or negotiated content agreements or constructed the necessary back office systems. AT&T has made all these investments, which won’t need to be duplicated. The combined company will have access to more customers, so it could qualify for more favorable content agreements, which are volume-based.
Although AT&T and BellSouth aren’t competitors, antitrust enthusiasts see them as “potential competitors” as long as they are kept separate. They think this is important because, in their minds, cellphones, cable, WiMAX, direct satellite and broadband power lines are all imperfect substitutes for the wireline carriers. The antitrust crowd used to argue that airlines and motor carriers were imperfect substitutes for railroads when they objected to every merger and acquisition in that industry. And that argument can still be made, since there are all kinds of differences between planes, trains and trucks in terms of price, speed, capacity and reliability. Yet, somehow, there is enough competition to keep nearly everyone happy.
As many others have noted, the antitrust crowd worships the myth of “perfect competition,” a hypothetically idyllic marketplace in which many, many indistinguishable providers compete on price alone (e.g., steel, sugar beets, air travel). In such a market, profit is eliminated. Bureaucrats act as referees, if possible, to make sure that no one wins and no one loses. This utopian fantasy isn’t harmful where innovation is neither desirable nor possible. But where investment is needed to improve services, profit is the spur.
The merger must now be approved by the FCC, which is accepting public comments. Supporters of net neutrality regulation will seek to obtain whatever advantage they couldn’t win from Congress.
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