The Politics of Mergers

IT WAS APPROPRIATELY SYMBOLIC THAT LAST week's Federal Trade Commission vote to approve the merger of AOL and Time Warner [see story, page 46] came just a day after George W. Bush was finally anointed as our next president. Aggressive antitrust enforcement has been a hallmark of the Clinton-Gore administration, and Bush is widely expected to take a less zealous approach. While the decision on AOL Time Warner was certainly not related to the results of the election, it was still hard not to see the FTC's action as a final, conciliatory gesture that foreshadows an important policy change.

If Bush is true to his promise to be a non-ideological president, though, the changes may be more incremental than Wall Street dealmakers -- and Microsoft lawyers -- might expect. On the Microsoft case in particular, a radical reversal of the Justice Department's position seems highly unlikely. The government won its case in convincing fashion, and a wholesale reversal of the verdict by the appeals court would surprise almost everyone but Bill Gates.

Some have speculated that if the appeals court does side with Microsoft, a Bush administration might decline to take the case to the Supreme Court. But even that seems like a stretch in light of the strength of the government's case. And Bush, more than any president ever, will be under enormous pressure to show that he is not playing games with the nation's legal system.

The AOL-Time Warner merger is a much murkier situation. The FTC review has focused mainly on whether the combined company might diminish competition in the broadband Internet access business by refusing to grant rivals access to Time Warner cable systems. This is an important question -- but not one that can be fully addressed in a merger review process. Time Warner delivers cable services to only about 20 percent of U.S. households, and the access question ultimately applies equally to AT&T and the other major cable operators.

That's why this issue will be adjudicated by the Federal Communications Commission -- and it promises to be a lengthy, expensive and ultimately not especially partisan fight. With the world's most powerful media and communications companies squaring off against one another, unleashing their full arsenal of lobbyists and implicitly threatening to end run Congress if they don't get their way with the FCC, the views of the new FCC chairman will seem like just one small piece of the equation.

Depending on who is appointed to the Justice Department, the FTC and the FCC, it probably is the case that most mergers will have an easier time gaining approval under the Bush administration than under Clinton's. But the differences will be at the margin.

It's also worth remembering that the original trustbuster, Teddy Roosevelt, was a Republican, and many ardent free-marketeers actually favor strong antitrust enforcement as a critical mechanism for maintaining capitalist competition.

We don't believe that unfettered consolidation in the media and communications industries will ultimately be a good thing for consumers or the economy. We're hopeful that the Bush administration will recognize the risks.

COPYRIGHT 2000 Standard Media International
COPYRIGHT 2001 Gale Group