Baby Bells Mergers In Trouble?
Shares of GTE Corp. and the Baby Bells skidded lower Wednesday amid a report that federal regulators are strongly considering whether to block two giant mergers involving the companies.
According to The Wall Street Journal, Federal Communications Commission officials are signaling that they might try to block SBC Communications' $56 billion purchase of Ameritech and Bell Atlantic's $52 billion acquisition of GTE Corp. FCC officials could not immediately be reached for comment.
Near midday, Bell Atlantic (BEL) was down 2 7/16 to 55 9/16; GTE (GTE) dropped 1 7/8 to 64 1/8; SBC (SBC) dipped 11/16 to 48 13/16; and Ameritech (AIT) declined 9/16 to 55 11/16.AT&T (T), which would benefit if the deals fail to pass muster, rose 1 15/16 to 69, reaching an all-time post-breakup high. The company may also still be basking in the glow of its deal Tuesday to buy IBM's (IBM) global data network.
A decision is still months away, but FCC officials are concerned that the mergers might limit competition in the local phone markets. They could seek to block the deals on the grounds that they are not in "the public interest," but such an approach might prove controversial, since the FCC has never used it before.
It would be even more difficult for regulators to rely on traditional antitrust guidelines, since none of the companies now compete with each other, except in a few minor instances. Indeed, analysts believe it is for that reason that the Justice Department will not intervene.
Still, lawmakers such as Sen. Mike DeWine, R-Ohio, have been putting increased pressure on regulators to magnify their probe of the Bells' mergers because of concerns that the trend could lead to the creation of a "Bell East" and a "Bell West." Already, the number of Bells has been reduced to five from seven. The two pending mergers would cut that to just four.
When legislators deregulated telecommunications in 1996, they had visions of greater competition and lower prices for consumers. They did not expect a rash of mergers, decreased competition and higher prices.
The Baby Bells, however, argue that they need greater size and economies of scale to take on the AT&Ts and Sprints of the world as telecom companies battle to become one-stop providers of local, long-distance, wireless, data and Internet services to consumers and businesses.
Written By Jeffry Bartash, CBS MarketWatch