Bell-nynex Merger Clears Key Hurdle

Justice Department Calls $23 Billion Deal No Antitrust Violation

Fcc Backing Is Last Step

Consumer Advocates, Long-distance Firms Are Disappointed

April 25, 1997|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Clearing the last major barrier to a $23 billion deal, the Justice Department said yesterday that it will not challenge the merger between Bell Atlantic Corp. and Nynex Corp., leaving new competitors in the local phone service market to deal with a behemoth that holds a near-monopoly on the business from New England to Virginia.

After a yearlong review, the Justice Department's antitrust division issued a one-paragraph statement saying officials have "concluded that the merger does not violate the antitrust laws."

The ruling, while expected, was nonetheless a disappointment to consumer advocates who contended that Bell Atlantic's experience in local phone service made it by far the toughest potential competitor Nynex could have faced in the huge New York market. It had also been resisted by long-distance carriers like AT&T Corp., which argued that the combined Bell Atlantic-Nynex will not only be powerful enough to fight off new competitors in local service, but also strong enough to dominate the long-distance phone business on the East Coast once it is allowed to enter it, which is likely to happen next year.

"There's little here for consumers to cheer about," AT&T spokesman Ritch Blasi said. "One mega-monopoly is no better than two smaller ones. These two companies could have competed against each other, but that's no longer the case."

But most mergers halted by antitrust regulators have involved companies that are already fierce competitors, as with the proposed merger of Office Depot Inc. and Staples Inc., which is being challenged in court by the Federal Trade Commission.

Bell Atlantic general counsel James R. Young said Bell Atlantic and Nynex had never competed because they have never been allowed to operate in each other's home territory. "The standard is whether the merger will tend to substantially lessen competition in any relevant market," Young said. "We're a much harder case for the government to attack because we and Nynex don't compete today."

Young said the Supreme Court has never endorsed the view that potential competitors can be barred from merging, though he conceded that the Federal Trade Commission supports that view of antitrust law. In any event, Bell Atlantic officials have argued that they did not plan to challenge Nynex's supremacy in local service in New York and New England because they could make more money by expanding into long-distance service instead.

Private antitrust experts mostly said the ruling was an appropriate application of the law, in part because they said so many new companies are entering the local phone business in the wake of deregulation that the Bell Atlantic-Nynex combination will change little. "Deregulation in the phone business has made the Baby Bells not only free to compete with each other, but also the long-distance companies and all kinds of cable service," said Lewis Noonberg, an antitrust lawyer at Piper & Marbury in Washington. "It's faulty to say the [Baby Bell] companies are a special breed. There isn't any doubt that big players with big capital and serious technology arms [are] scrambling to get a piece of the pie."

Young said all three of the major long-distance carriers are prepared to compete hard in local service. AT&T retains cadres of executives who started their careers in local service, and both Sprint Corp. and MCI Communications Corp. have partnerships with companies that are major local carriers in the United States or Europe.

One industry analyst said the cellular phone industry's experience suggests that the merger will not overwhelm new competitors, especially if they can bring new technology to market that makes local calling better and cheaper.

TeleChoice Inc. analyst Chris Landes says companies are developing systems to deliver part or all of consumers' local phone service with wireless technologies that bypass the oldest, least efficient parts of Baby Bells' networks. Landes said the situation could mimic the unveiling of Sprint Spectrum's personal communications service (PCS) after the 1995 merger of Bell Atlantic and Nynex's cellular operations.

Sprint claimed from 20 percent and 30 percent of new customers in the Washington-Baltimore wireless phone market within a year after it began offering the service here. Sprint's appeal was based on a then-new digital technology that offered more features, more privacy and better call quality than conventional cellular. Bell Atlantic Nynex Mobile and Cellular One have since begun promoting their own digital services.

The one approval still needed for the merger is that of the Federal Communications Commission, where officials have said they are likely to defer to the Justice Department's decision.

Pub Date: 4/25/97

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