Friday, December 15, 2006

BellSouth-AT&T Merger Good for America?

A friend of LafayetteProFiber from California recently forwarded the link to a post on isen.blog that dealt with the AT&T-BellSouth merger. (Thanks, Jeff!) BellSouth and AT&T have claimed that their merger is in the public interest--basically reasoning that bigger is better. Isenberg remarks on a filing by Sumit Majumdar in the FCC review of the merger that contests AT&T's position that the merger is good for the country. Majumder qoutes AT&T as claiming:
the merger will solidify and secure the nation’s status as a world leader in telecommunications and that it will strengthen national security. And we have shown that all of these benefits will be realized without any cognizable harm to competition
That is just nuts. How a major telecom consolidation benefits national security or can be not harmful to competition runs up against common sense. Eliminating a major competitor by absorbing their entire base has got to be, on the face of it, anti-competitive. That is so nuts that mostly nobody feels obliged to contest the obviously self-serving claims of the companies involved. Majumdar is not so sangine...he actually does the hard work of demonstrating that in the past such mergers have emphatically not benefited the public. But Majumdar goes further: he, in his academic way, claims that the evidence indicates the real reason for consolidation is to gain raw market power--that is to achieve a monopoly status that will allow the company to make larger profits without any of the benefits to the public that accompany price increases in truly competitive situations. That's the gist of the challenge in the following paragraph:
We have started with the expectation that if market power acquisition was, indeed,
not the motivation for the mergers we would see no changes in relative cash flows that were
generated by revenues. On the other hand, we would observe significant cost declines and
significant improvements in measures of technological progressiveness. If market power was
the true motivation, then we would observe enhancements n relative cash flows that were
enerated by revenues reflecting the exercise of market power due possibly to price
increases. We would also observe no efficiency gains. Neither would we observe any improvements in measures of technological progressiveness.
The evidence shows that it is increased market power, (e.g. increasing levels of monopoly power) that is the real effect of telecommunications mergers.
Our comprehensive analysis, which is the only empirical evidence on the question
that we are aware of, in which we have used several performance measures and stringent
statistical procedures, has revealed that mergers have not created the expected synergy
effects. Mergers have led to possibly increased market power. What has increased for the firms have been their ability to generate relatively higher revenues. No sales volume growth
is noted; hence the revenue increases are due to likely price increases. No cost efficiency
gains are noted at all. In fact, the most important measures of operational performance have
deteriorated in the post merger period. Under investment of technology, especially
broadband, is observed following merger activities. Expectations that mergers will lead to
increased investments and up gradation of the communications infrastructure, and for
technological progressiveness of the US telecommunications infrastructure, have been
vitiated. (emphases mine)
In short the AT&T merger with BellSouth is only likely to be good for the new, more powerful AT&T--not because the larger body is more efficient or more innovative (Majumdar's research indicates otherwise), but because the larger entity, operating in a less competitive field has "revenue increases [that] are due to likely price increases" unaccompanied by service improvements.

So we here in Lafayette should not expect the benefits of efficiency, better service or a more innovative company to emerge from the AT&T/BellSouth merger the current administration is so eager to complete.

On the historical evidence, all we can expect are price increases.

No comments: