48 Federal Communications Law Journal 247 (1996)
Mobile telecommunications businesses are undergoing an unprecedented period of mergers which may result in a national network for Personal Communications Services. All of these transactions require the approval of the Federal Communications Commission (FCC), which is in the process of issuing thousands of local, regional, and nationwide licenses. The FCC grants the licenses under "the public interest" standard of the Communications Act of 1934, which requires an analysis of each proposed merger's effect on competition.
The Author begins his description of the analytic framework used by the FCC by describing its variables. Part I describes the "product market," which must be defined and established for each party to a proposed merger. Generally, the boundaries of these markets are determined by the interchangeability of use and demand for the product and its substitutes. The Author provides four general rules for defining product markets and provides a description of cases in which these rules were employed. The Author then provides an alternative, more precise method of defining a product market which is found in merger guidelines published by the Department of Justice and the Federal Trade Commission. The Author concludes this section by applying the classic rules and the alternative definitions to determine a product market in a hypothetical mobile services merger.
Part II deals with the "geographic market," the area of effective competition. The Author begins by providing the definition of geographic market found in case law. The Department of Justice and the Federal Trade Commission also publish recommended guidelines containing a more precise definition of a geographic market. Both the case law definition and the federal guidelines definition are then applied to a hypothetical mobile services merger to determine the resulting geographic market. The Author concludes this discussion of the analytic framework by discussing the differences in horizontal, vertical, and conglomerate mergers. A horizontal merger is between companies performing similar functions; a vertical merger is the acquisition of one company which buys the product sold by the acquiring company or which sells the product bought by the acquiring company; and a conglomerate merger is one that falls under neither of these headings.
Once the Author details all of the variables of the framework—the product market, the geographic market, and the classification as vertical, horizontal, or conglomerate—he describes the actual analytic framework used in a typical horizontal merger. This framework has two parts: determining the degree of "concentration," the amount of power held by a small number of companies before and after the merger, and determining the potential for pro- and anti-competitive effects. Concentration can be determined by classic objective measurements like the Herfindahl- Hirschman Index (HHI), which requires a calculation of the market share of each competitor in the premerger relevant market, squaring this calculation, and computing the sum of all of these squares. The difference in the pre- and post-merger sums is an estimate of the change in that market's concentration. In an unconcentrated market, a horizontal merger will have no anticompetitive effects. The Author provides an example of the HHI for a hypothetical mobile services merger.
The HHI is not wholly dispositive of whether a merger will be anticompetitive, but it does establish a burden of proof against the merger if the HHI numbers are favorable. This anticompetitive condition may result in diminished innovation, price fixing, and limitation of output. The Author concludes the discussion of horizontal mergers by noting that they may enhance competition by reducing the need for governmental regulation, creating efficiencies in the form of financial savings, economies of scale and scope, and creating easier conditions of entry into the market for other competitors. The Author also includes a brief discussion of vertical mergers, which are generally viewed as conducive to competition, and their potential competitive pitfalls for the mobile services industry. The Author closes by describing the types of actions taken by the Federal Trade Commission if a merger is deemed anticompetitive.
Berresford, John W.
"Mergers in Mobile Telecommunications Services: A Primer on the Analysis of Their Competitive Effects,"
Federal Communications Law Journal:
2, Article 2.
Available at: http://www.repository.law.indiana.edu/fclj/vol48/iss2/2