Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Edited by Peter C. Carstensen and Susan Beth Farmer

This comprehensive book contains case studies on the evolution of competition policy, with an emphasis on merger policy, for seven major US industries that have experienced substantial deregulation in the past forty years – electricity, natural gas, telecommunications, railroads, airlines, hospitals and banking. Also included is a comparison of the EU’s experience in attempting to bring about competition in the energy, finance, and airline industries.

Chapter 4: Telecommunications Mergers

Jim Chen

Subjects: economics and finance, competition policy, industrial organisation

Extract

Jim Chen1 MERGER MANIA AND THE TELECOMMUNICATIONS ACT OF 1996 The Telecommunications Act of 1996 promised to ‘promote competition and reduce regulation’, ‘secure lower prices and higher quality services . . . and encourage the rapid deployment of new telecommunications technologies’ (Telecommunications Act 1996, 110 Stat. 56 (1996)). Detractors argue that the Act in practice has disappointed the expectation that legislative reform would ‘open all telecommunications markets to competition’ (1996 S. Conf. Rep.,1). Among the gauges by which critics have assailed the Telecommunications Act, the record of mergers among telecommunications firms since 1996 figures prominently. A dozen years after comprehensive legislative reform, all significant segments of the telecommunications industry are highly concentrated. Three firms dominate local exchange and wireless sectors alike. Miniature versions of the old Bell system have emerged. Verizon and AT&T have reinvented and revived the end-to-end telephone company combined with a geographic division of the United States. The cable industry is only slightly less concentrated, and nothing stands between further consolidation and integration in that industry except laws predating the 1996 Act that had been designed to protect competition within media markets rather than telecommunications markets. If, as appears increasingly likely, Voice over Internet Protocol (VOIP) eventually overcomes every other form of terrestrial telecommunications technology, control of telecommunications will be divided between providers of broadband Internet access and wireless network operators. Firms that are the most facile in integrating wireless and wireline services, for residential and business customers alike, will dominate the industry. In the quarter century...

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