Monday, December 11, 2006


BellSouth-AT&T Merger: Empirical Evidence

Will the BellSouth merger be good for America? The evidence says, "No!"

Merger proponents say that the BellSouth-AT&T merger is "in the public interest" because the merged entity is more efficient, more innovative, and "capable of accelerating and expanding the delivery of high quality advanced technologies and services to all classes of customers, large and small." They also say that this merger will "solidify and secure the nation’s status as a world leader in telecommunications and that it will strengthen national security." Are these claims true?

It is rare to have good studies of real-world data that bear directly on policy decisions. When it happens, it deserves our attention! That's why comments [.pdf] by Professor Sumit Majumdar filed at the FCC three weeks ago are so important.

Professor Majumdar, of UT Dallas, told the FCC details of his study, which analyzed all US LEC mergers in the fourteen year period 1998-2001. The professor's methodology is best described by the technical term hairy. Yet Professor Majumdar seems to have done a careful, workmanlike job of analyzing the difficult data, controlling for all the external variables he could get his hands on, et cetera. [If you're an economic statistician, please take a look and let me know what you think.]

Majumdar says his work is "the only empirical evidence on the question that we are aware of," [my emphasis -- DI]. Majumdar, who teaches competitive analysis and telecom policy, wrote that the LEC mergers he studied . . .
. . . have not created the expected synergy effects . . . 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 [in] technology, especially broadband [my emphasis -- DI], is observed following merger activities. Expectations that mergers will lead to increased investments and upgradation of the communications infrastructure, and for technological progressiveness of the US telecommunications infrastructure, have been vitiated.
Professor Majumdar concludes . . .
We find that the approval of the mergers in the past have clearly led to welfare losses for the American consumer. The approval of the ATT&T and SBC merger will lead to further substantial negative economic consequences for hundreds of millions of American consumers. Approval of the merger is not in the public interest.
Until now, I've been fairly quiet on the subject of telecom mergers. I've seen up close the maladaptive behavior of giant corporations enough to believe that small is beautiful. But I didn't know enough to complain about telecom mergers per se. I thought they were, in Susan Crawford's words, the huddling together of the Mastadons as the climate changed.

But now the first evidence is in. What's the hurry, BellSouth? Why rush, AT&T? What's the big emergency, FCC? If you want to do what's good for the United States, you'll pause to consider the new evidence in front of us.

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here is one for you - check this out AT&T is trying to screw a small reseller out of $61 million - they had to file an 8K.

why doesn't the FCC look into this -
taxes...the IRS should be intereted.

It's all about monopoly power.

Thought I'd point out that Majumdar and his students are, underneath the academic jargon, not shy about what they believe is really going on.

They believe that the AT&T-BellSouth merger is, on the evidence of previous mergers, motivated by a desire to achieve monopoly level control in the telecom sector--and that has been successful.

Increasing profits are a consequence of increasing market control--not new efficiences, better service, or increasing levels of innovation.

Majumdar and his students are saying that re-monopolization is having the very expectable consequence of making monopoly pricing more viable for the companies involved.

Here's the money qoute:
"The local exchange sector has been re-consolidated and re-monopolized a generation after the divestiture of the original AT&T in 1984. Today’s lack of productive efficiency and technological progressiveness, particularly with respect to the deployment of broadband and network digitalization, of the merged US companies means that the welfare of the US consumer has been significantly compromised in perpetuity."

It's all about monopoly power.
I must be confused. It was best for us "said the courts", that the monoply be broken up. Then came the split of the Bell and AT&T companies resulting in a bunch of mini-bells and a LD carrier. The net result of that was increased cost to the consumer coupled with new charges like the charge for not using long distance if you had a provider and did not make calls. Also high local service due to increased costs of smaller companies providing local service. LATA's, inter-LATA, and a bunch of non-sense. Now that the merger is approved, it appears that cost to the consumer will be going up. Then there is the merger with comcast. Local & Long Distance, cable, wireless, & more all in one big monopoly. Could the courts please leave it one way or the other? Now not only do I have to pay for the re-merger, I have to put up with annoying phone calls from people who identify themselves as "calling about the AT&T-Bellsouth" merger. These calls are very repeative and have no value. Even after telling them that I was happy with the service I pressently had and did not want to change anything, they continued to call. The good thing is that the caller can connect you to the disconnect office so now I don't have to put up with their annoying and stupid calles and sales pitches.
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