Letter from CSE Foundation and CEI to FCC Chairman William Kennard regarding the FCC’s role with regard to several pending merge

Citizens for a Sound Economy Foundation

1250 H Street, N.W.

Suite 700

Washington, D.C. 20005

Phone: (202) 783-3870 Competitive Enterprise Institute

1001 Connecticut Avenue, N.W.

Suite 1250

Washington, D.C. 20036

Phone: (202) 331-1010

December 11, 1998

The Honorable William Kennard


Federal Communications Commission

1919 M St., N.W.

Washington, D.C. 20554

Dear Chairman Kennard:

It has become evident that the Commission is searching for its proper role with regard to several pending mergers in the telecommunications industry. We believe that the surest and quickest way to promote competitive telecommunications services is to enforce the law where necessary and to deregulate the marketplace wherever possible.

On behalf of the more than 250,000 members of Citizens for a Sound Economy Foundation (CSE Foundation) and the Competitive Enterprise Institute (CEI), we urge you toward a policy of intervention in markets only where it is explicitly required by the law.

The path to competition is not paved with regulatory conditions, overly specific regulations or standards set by the government. In fact, vigorous competition can exist only in an environment free from such strictures.

We understand the Commission’s concerns about the effects of any given merger on actual, or potential, competition and its instinct to give comprehensive scrutiny to mergers. However, involvement by the Commission in competitive analysis is unnecessary and duplicative of what we believe to be an extremely active antitrust division at the Department of Justice.

In addition, we believe that it is through an open market – where consumers have choices and where buyers and sellers are free to contract with whom they choose, on terms they determine – that the public interest is served. Scholars and analysts at CSE Foundation and CEI have studied the effects, the incentives and the structure of economic regulation for nearly 15 years. In all of that time, it has become clear that the outright prohibition, or the strict restriction, of mergers in a highly dynamic market is dangerous to consumers and harmful to the marketplace.

We view the current wave of telecom mergers as part of a broad restructuring in the telecommunications market. As telecommunications technology advances, and as

competitive threats to former monopolists mount, it is increasingly clear that the artificial division of the industry into arbitrary geographic regions is no longer sensible.

Far from being a regional business, telecommunications is national – even global – in scope. For a variety of reasons – capital formation, cost synergies, and ease of one-stop-shopping – firms are reaching out beyond their former regional limits. In short, the telecommunications industry is readjusting, throwing off the arbitrary divisions imposed on it by Judge Greene in 1983, and taking a new shape based more on modern market realities.

In particular, we are encouraged by proposals to increase facilities-based competition. The public record on the proposed SBC-Ameritech merger illuminates a credible plan to expand facilities and services on a national scale – beyond traditional service areas. CSE Foundation has filed comments on this merger. Likewise the public record on the proposed Bell Atlantic-GTE merger raises the clear potential for increased competition. CEI has filed comments on this merger.

Over the last few months a lively discussion has emerged with regard to the proposed AT&T-TCI merger. Indeed, we have watched with alarm as this public debate has shifted toward extensive and burdensome regulation as a pre-condition of that merger. The regulatory regime for rates (wholesale and retail), network elements, toll-areas and accounting procedures that dominates the residential consumer telephony market must be modernized. The recent shift in rhetoric toward “regulatory parity” has been a step in the right direction. Unfortunately, we believe that Commission may opt to heap more regulation on everyone, rather than to eliminate regulation where possible.

Again, we urge a policy of restraint as you consider mergers in the telecommunications industry. Time and again market forces have proved to be the best way to ensure that consumer needs are met.


Kent Lassman

Regulatory Policy Analyst

Citizens for a Sound Economy Foundation James L. Gattuso

Vice President

for Policy and Management

Competitive Enterprise Institute

cc: Commissioner Furchtgott-Roth

Commissioner Ness

Commissioner Powell

Commissioner Tristani