By Alan Pearce
Although they will steadfastly deny it, it is the Congress, the Department of Justice and the Federal Communications Commission that are, in large measure, responsible for the current consolidation trend in the telecommunications industry.
When Congress tore down the walls that had separated different industry segments, it invited companies of all types to seek partners. And the consolidation trend will only quicken once the five remaining regional Bell operating companies have had their 14-point competitive-checklist compliance plans approved. Then they will embark on a feeding frenzy of their own that will make the WorldCom/MFS/UUNET/MCI/Brooks Fiber/et-al. consolidation pale in significance.
The exact timing may be in question, but the MCI/WorldCom combo will gain approval. The Justice Department and the FCC have yet to deny or even significantly amend any of the mergers. That includes telecom deals such as SBC/PacTel, Bell Atlantic/NYNEX, AT&T/McCaw, WorldCom/MFS, Sprint/Deutschke Telecom/France Telecom and MCI/BT. It even includes entertainment mergers such as ABC/Disney, CBS/Westinghouse, and Time Warner/Turner.
And they have added fuel to the consolidation fire by imposing policies on the RBOCs and GTE that mandate local exchange company productivity gains.
There are three ways in which incumbent carriers can increase productivity: They can merge so they can fuse their networks into a single entity in the hope of increasing traffic; They can significantly reduce their work force; Or they can hope for some technological breakthrough that will dramatically reduce their costs.
Consolidation takes care of the first two of these three productivity factors and has the additional advantage of putting the fear of God into any potential and/or emerging competitor.
So the megamergers of today will continue unabated. The mergers are primarily strategic and are undertaken in order to strengthen a company's competitive position, please its stockholders and the financial community, and chill competition.
The MCI/WorldCom combo, by creating a bigger threat to AT&T, may even change the picture for the No. 1 telecom giant. Former FCC Chairman Reed Hundt's chilling warning that an AT&T/SBC alliance would be "unthinkable" will be tested again in the near future.
In the event that the FCC and the Justice Department oppose vertical mergers in the future, you can expect Congress to step in and amend the antitrust laws on the grounds that U.S. competitiveness and technological leadership demand it. After all, if Deutsche Telekom and France Telecom can buy big stakes in Sprint, why can't AT&T buy BellSouth and Ameritech, or even SBC and GTE?
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