CREDIBILITY GAP

This week, the FCC will hold hearings on the anticipated mergers of SBC Communications with AT&T and Verizon with MCI. Even those still vehemently arguing against these mega-mergers have to admit that the chances that either the FCC or the Department of Justice will block their completion are so small as to be nonexistent. So the more important question becomes, what will the FCC or the DOJ do to try to ensure that competition isn't seriously damaged by the creation of two behemoths? However, there is a second question of equal importance that must be asked: Will the FCC once again impose merger conditions that are unrealistic and unenforceable? This is, after all, the agency's track record in handling business deals such as these. When SBC bought Ameritech and Bell Atlantic merged with first Nynex and then GTE, one of the bones the FCC tossed to the industry was requiring the companies to then compete out of region. The idea was to artificially stimulate competition by making it a merger requirement. That requirement was never enforced, however, and both companies were able to proceed with their intended mergers without making the unwanted investment. This time around, the FCC must walk a very fine line in determining how much to handicap these new dominant players. Each is already under attack, both from existing competitors and from newcomers with new technology, and neither is guaranteed success in the converged market ahead. Yet each also holds the ability to crush competitors, if left completely unfettered. The impact, particularly on business customers, could be dramatic in terms of loss of choice and increased costs. The FCC's difficult job will be to determine where to protect, where to defend and how to enforce, with the latter being tantamount.