Forget Microsoft: Telcos May Be Next Stop on Antitrust Train
AT&T is cornering markets, not Microsoft, some say
P> The federal government, most notably the Justice Department and the Federal Trade Commission, is known for investigating every move Microsoft makes for antitrust violations. However, Microsoft soon may happily see its place in the spotlight taken over by the burgeoning telecommunications corporations, especially the Queen, former Ma Bell AT&T.
The recent proposed mergers of Bell Atlantic and NYNEX as well as SBC Communications Group and Pacific Telesis Group narrow the competition among the Bells. Similarly, the pending acquisition of Internet service provider UUNET Technologies Inc. by telco MFS Communications signals a shrinking communications industry. Telcos are starting to offer everything but the kitchen sink in deals that include cellular, Internet, paging, computers and even home security. Those companies that aren't merging or in acquisition talks are furiously forming joint ventures. And Robert Pitofsky, chairman of the Federal Trade Commission, has made it clear he sees the new era of intellectual innovation to be rife with monopoly possibilities.
Federal Communications Commission Chairman Reed Hundt is even using the new telco environment as a reason to keep his agency alive. "As new communications conglomerates shape our thoughts, decide what we should know and define our consumption -- all on a global basis -- the people must have an agent of the public interest to represent them," Hundt said at a Washington, D.C., conference last week.
What may save the supercarriers from antitrust suits may be the tendency to partner with many companies, including competitors. "It's virtually impossible for one company to manage to do everything, so we'll have many partnerships," said Peter Thonis, vice president for communications at BBN Planet, Cambridge, Mass.
In such a volatile atmosphere, communications companies are hedging their bets. "The bad news is that these ventures are risky, but the good news is that means they will probably survive antitrust scrutiny," predicted Richard L. Bernacchi of the law firm Irell & Manella in Los Angeles. New, tougher companies will compete more fiercely.
Still, no one doubts that scrutiny will be stronger than ever. And some communications companies probably will feel the brunt of that attention first. Pitofsky has spent much of his first year as FTC chairman examining the Time Warner-Turner Broadcasting proposed merger. The FTC is now expected to block that $7.5 billion deal, or at least get the principals to make changes to the terms.
"Concern about concentrated economic power should be given added weight when the merger concerns companies involved in the communication of ideas.... In those industries, there is more at stake than high prices or low quality to consumers. There is a more fundamental issue of avoiding centralized control over access to the marketplace of ideas," said Pitofsky in a 1993 testimony before the Senate Judiciary Committee.
More recently in an interview, Pitofsky said those points still ring true. There's a big difference between a toothpaste company merger and a media deal, he said. Anne Bingaman, assistant attorney general for antitrust at the Justice Department, recently decided to add three lawyers to her division's Telecom Task Force, bumping the team up to 50.
AT&T, while it recently split into three companies, owns the best name recognition of any of the telcos. "The [AT&T] services business will clearly be one of the world-class providers of integrated, bundled, end-to-end, service solutions.... Brand equity will be very important in the upcoming fight between the Bells and the long distance companies," said Jack Grubman, an analyst with Salomon Bros., New York.
The AT&T name gave an enormous jump-start in its consumer Internet offering. And AT&T's movement into credit cards and the Internet has not gone unnoticed. It is the stuff monopolies are made of.
For that reason, many companies are scared of Microsoft CEO Bill Gates' reach. But those same companies -- whose lobbyists have the ears of regulators -- are starting to worry about AT&T's Robert Allen. "The company that brought everyone the phone now will bring the Internet to everyone," said Allen. That may be just the problem.