- The Washington Times - Wednesday, July 12, 2000

Hot on the heels of Microsoft breakup headlines, the Justice Department's antitrust czar, Joel Klein, has announced another corporate dragon-slaying.

The department will disallow the WorldCom/Sprint merger. The question is, despite all of their "new economy" rhetoric, do Mr. Klein and the administration he serves understand the damage denying this merger wreaks on the emergence of the very technologies that they praise and talk about fostering?

WorldCom and Sprint argued their case in terms of assembling under one corporate roof the wherewithal to compete in a constantly changing communications market, where consumers demand more quality at lower costs, as well as the untethered access of wireless communications and want to avoid hassles by buying bundled services from the same company.

Opponents of the deal didn't disagree, so much as they argued that the two companies could obtain the same competitive benefits without merging, through some sort of less formal strategic alliance. Of course, the mere fact that Sprint and WorldCom's competitors were so eager to micromanage the shape their competition would take tended to prove Sprint and WorldCom's larger point: Corporate opponents to the merger would really rather not face the fresh competition a combined Sprint/WorldCom would mean. As a good regulatory rule of thumb, count on any remedy advanced by companies competing with the merging ones to prompt less, not more, competition.

On the numbers alone, the WorldCom/Sprint deal was a strange place for Justice to make an anti-merger stand. Consider other recent communications combinations and their market-share impact: The approved AT&T;/ MediaOne merger gave that company access to a majority of the cable assets serving U.S. homes. On the local phone front, Ameritech merged with SBC, NYNEX with Bell Atlantic and soon GTE, giving two Baby Bells control of nearly two-thirds of all local phone lines. With mergers like those gaining government approval, it's amazing to see Justice's antitrust staff balk at a combination that would have given Sprint/WorldCom just over 30 percent of the hyper-competitive long-distance market. Indeed, earlier this week the Justice Department recommended that SBC be allowed to enter the Texas long-distance market which industry analysts immediately deemed a competitive challenge to both AT&T; and WorldCom.

But private sector combatants and the regulators who referee merger activity come at the market from two different mindsets. Having access to government letterhead doesn't change the fact that regulators are mere mortals like the rest of us, with a better sense of where markets have been than where they're going. Regulating through a rearview mirror can be unsafe at any speed. Yale's Paul MacAvoy a longtime critic of the government's antitrust policy who filed a friend-of-the-court brief regarding the WorldCom/Sprint merger has observed that federal regulators look to patterns in past performance and then, in Mr. MacAvoy's phrase, "argue forward."

Perhaps that's why trustbusters tend to see this marriage as an anti-competitive merger between the second and third largest long-distance giants and perhaps a decade ago, it might have been. But consider today's communications environment: Never before has the fact that two companies loom large in long distance meant less. Indeed, the once-distinct local and long-distance domains are dissolving into "all distance" applications. Phone calls piped through cable are becoming more common and more competitive, while even electric utilities are talking about getting into the phone business. Technology is perfecting broadband pipes that are indifferent to what bits burn along their length video, voice or data merging historically separate modes of communication. In fact, even the word "telephone" is a bit of a misnomer at a time when you don't need a phone at all to call across town or around the world via the Internet. What drives mergers like Sprint/ WorldCom isn't market position in a single line of service, but rather the ability to bundle services to provide a range of consumer needs.

In a world where the communications landscape is shifting beneath our feet, what shape should competition take? Listen to the words of one long-time participant in the communication world's merger wars: "The ideal competitive environment should enable the development of as many different conduits or points of entry as possible be it cable, telephone, wireless, as well as other emerging technologies in order to link people with all kinds of content: voice, video and audio and so on."

Is that a sentence culled from corporate press releases spinning the virtues of the Sprint/WorldCom merger? Not at all; the speaker was none other than Mr. Klein, opining on the best-of-all-worlds for communications competition in 1998 congressional testimony. As a competitive yardstick to measure mergers by, that's not bad at all; if anything, the logic in Mr. Klein's words has grown sharper since then.

For the sake of U.S. consumers, it's a shame that Mr. Klein's ruling on the Sprint/WorldCom deal failed to reflect the clear-eyed view of communications competition he expressed two years ago to the U.S. Congress.

Dick Thornburgh, former governor of Pennsylvania, served as attorney general under Presidents Reagan and Bush.

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