Mergers and Acquisitions in Telecommunications TC 310 June 12, 2008

Putting Bell Back Together Vertical (and some horizontal) consolidation No longer concerned?  Regulation ineffective  New Technology  Economies of Scale, Scope  Globalization

Prediction Problems Prediction necessary by regulators  What would happen if they do merge  What happens if they don't merge Agencies have made serious prediction problems  Ex. IBM and AT&T Nature of Telecommunications  Network Effects  Quick technology changes  Unanticipated Technologies (VoIP)‏

Overlapping Jurisdictions FCC  Telecommunication broadly under Title I DoJ  Sherman and Clayton Anti-trust Acts States  Jurisdiction over traditional telecommunications  No wireless, no information services

DoJ Procedures Hart-Scott-Rodino Antitrust Improvements  (1971)‏  Merger in Telecom, get review period  Merger accepted, DoJ does nothing  Merger disliked, DoJ must be proactive File enjoiner  Burden of proof is on DoJ

FCC Procedures Opposite of DoJ Burden of proof is on merging companies Block by doing nothing 1934 Act  Telecom merger is a new name plate  Entry prohibited until FCC permits  Public Interest mandate  Flexibility to add conditions for public interest FCC and DoJ differ on their desire for conditions

Guidelines FTC and DoJ create guidelines  FCC uses them voluntarily Concentrated Markets  Undue market share  Competition significantly increases  Feasibility of increased capacity  Ease of entry

Guidelines II Potential Competition  Increase competition, not just lessoning  Used under following conditions High market concentration Few equal companies in market Enter even without merger Feasible to enter without merger Resources deconcentrate market

Public Interest Standard Applied Generally promotes  Competition, deregulation, national policy  Antitrust perspective of competition  Increase advanced telecom, info services  Would a merger help, hinder above three  Merger specific conditions

Merger Trends FCC mostly approves mergers DoJ mostly approves mergers  They have been small to small companies Lack of precedents, ad hoc instead  Dislike of geographic/local mergers  Favor wireless expansion  Favors vertical integration  Global mergers good, just don't hurt U.S. Increased burden of proof

Take Away Unlike other areas, interaction between FCC, DoJ, and FTC  FCC weilds more power, ability to do nothing, no strict guidelines Mergers are potentially good for competition  Global  New markets Current merger trends all about economics  What else do we value?