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SBC-Ameritech Merger Will Test U.S.

May 11, 1998

WASHINGTON (AP) _ The proposed merger between SBC and Ameritech is like a child testing a parent on how far he can go, one antitrust attorney says. The parent in this case is the Justice Department, already busy dealing with other high-profile antitrust and merger cases.

The $62 billion merger, announced Monday, would combine two Baby Bells into a local telephone colossus, controlling nearly one-third of the nation’s phone lines in 13 states.

By fusing the companies’ adjoining local phone territories, the merged company would control a Midwest swath from Wisconsin to Texas.

``Children will get away with whatever they can until a parent slaps them down. So the kids, in this case, SBC and Ameritech, are testing their parents,″ said antitrust attorney Lloyd Constantine.

``Part of the two phone companies’ analysis has got to be that the (Justice Department’s) antitrust division is very, very busy right now. They’ve got Microsoft. ... They’ve got several huge bank mergers,″ added Constantine, who once headed New York state’s antitrust enforcement.

Consumer groups say they will ask the Justice Department, the Federal Communications Commission and state attorneys general to block the deal.

They argue that SBC Communications Inc. and Ameritech Corp., whose local phone territories abut each other on the Missouri-Illinois border, would have been each other’s biggest competitor.

``It is easy to invade each other when you share a border. By combining you are losing the most likely potential competitor,″ said the Consumer Federation of America’s Mark Cooper.

Earlier this year, Ameritech got permission from Missouri regulators to provide local phone service in St. Louis, Mo. _ part of SBC’s local phone territory, an Ameritech spokesman said. Ameritech, however, is not providing local phone service there now, the spokesman said.

Ameritech also provides cellular phone service in St. Louis, the spokesman said. SBC provides cellular phone service in Illinois, part of Ameritech’s local phone region, an SBC spokesman said.

``The question is whether that is a signal that Ameritech had plans to expand into SBC’s market or vice versa,″ said New York University law professor Eleanor Fox. ``If the government were to bring a case, it has to prove that one company would be the potential competitor to the other _ and the government would have to prove that serious competition would be eliminated.″

It’s rare for the government, however, to try to block a merger on such grounds because it is difficult to prove in court.

Still, antitrust experts said Ameritech’s interest in the St. Louis market and SBC’s cellular business in Illinois could be useful to regulators trying to make a case the two would have been potential rivals.

The Consumers Union and the Consumer Federation of America also contend the merged company would be so formidable it would discourage other companies from offering local phone service.

``You could see substantial danger of rate increases for consumers,″ said Gene Kimmelman, co-director of the Consumer Union’s Washington office.

The two issues _ whether SBC and Ameritech would have been competitors and the merger’s impact on prices _ go to the heart of the government’s review.

The Justice Department’s antitrust chief, Joel Klein, got a lot of political heat last year when he cleared without strings the last big phone merger: between Baby Bells Nynex and Bell Atlantic.

Opponents argued that deal should have been blocked because the two companies would have been competitors. Justice also had previously cleared SBC’s takeover of another Baby Bell, Pacific Telesis.

``I think, given the history of these mergers, this transaction will certainly get close scrutiny,″ said Charles Rule, who headed the Justice Department’s antitrust department from 1986 to 1989. ``But I have a feeling, though, this one will probably end up the same way the other two did, that is to say, without a challenge.″

For the FCC, ``the bottom line question is: Is this merger going to create competition, or will it be a nonaggression pact?″ said Chairman Bill Kennard.

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