WASHINGTON -- AT&T Corp.'s merger with any large local telephone company is "unthinkable" because it would undermine competition among long-distance and local telephone systems, FCC Chairman Reed Hundt said yesterday.
Hundt's comments come as AT&T and SBC Communications Inc. consider a $50 billion transaction that would combine the largest long-distance company with the biggest Baby Bell. Last week, AT&T Chairman Robert Allen said there were several advantages to buying one of the Baby Bells, the regional telephone companies shed by AT&T more than a decade ago.
But such a combination "yields a resulting concentration that is unthinkable," Hundt said in a speech at the Brookings Institution in Washington.
Hundt's opposition to such a transaction may make it difficult for AT&T to gain government approval unless the companies encourage rivals to offer competing services, analysts said. Hundt's comments are likely to complicate AT&T's talks even though he plans to step down soon because he has enormous influence in the nation's capital, lawyers said.
"There are a number of structural things that could be done that would make such a combination very pro-competitive," said Blake Bath, an analyst at Lehman Bros. Inc. "Hundt's being naive in thinking that Bell and long-distance company mergers aren't going to be proposed."
The debate comes 16 months after Congress passed the Telecommunications Act of 1996, which lets local and long-distance companies offer services traditionally provided by the other. The law requires the Bell companies to meet a 14-point FCC checklist that shows they've opened their local markets to competition before they can begin providing long-distance services.
Hundt, who served as an anti-trust lawyer before moving to the FCC, said in his speech that an AT&T-Bell company merger would have a negative impact on competition in both the local telephone and long-distance telephone markets.
When a Bell company enters the long distance business within its own service area, Hundt estimated it would garner 20 percent to 30 percent of the long-distance market. That, combined with AT&T's already 70 percent share of residential customers and about 40% of business customers yields an "unthinkable" result, Hundt said.
In the local telephone market, Hundt said it is "difficult to imagine that any other firm will be a more effective, broad-based local entrant than AT&T."
When that happens, if AT&T garners "even a modest percentage of market share taken from the existing Bell" in the region, a merger between that Bell company and AT&T would also be "unthinkable."
Hundt said he made the comments about AT&T because it is "right and proper" for government to give "clear guidance to firms about what mergers are unthinkable and what are thinkable."
Earlier this month, Hundt said the government should establish a "clear line" that such a merger will boost competition before approving it. He made the comment on the June 2 edition of CNN's "Money Line" show.
Hundt refused to comment on any other potential mergers, including Bell Atlantic Corp.'s $23 billion acquisition of Nynex Corp.
Pub Date: 6/20/97