March 10, 2006
Antitrust Regulation in the Telecom Industry
The blockbuster acquisition of Bell South by AT&T is a lesson in the folly of myopic antitrust regulation. In 1997, the chair of the Federal Communications Commission, Reed E. Hundt, killed a deal between AT&T and SBC saying it would be "unthinkable" under antitrust laws. Last year AT&T and SBC merged without opposition and now the combined AT&T/SBC is anxious to purchase BellSouth. The new company will have the largest market share in three telecommunications markets -- the land line phone market, the DSL market and the cell phone market -- that are otherwise fast consolidating.. Mr. Hundt says the FCC should "bless the deal." The telecom market moves so fast that it is very risky to speculate about the permanence of current market advantage and dangerous for the government to use antitrust enforcement to ossify such speculation into permanent market structure regulations through judicial consent decrees.
Dubai Ports World Deal: The End Game
A threat by Congress to pass legislation stopping the purchase of Peninsular & Oriental terminal operation in the United States by Dubai Ports World has led Dubai Ports, which has closed its acquisition of P&O, to promise to "transfer" its United States operations to "a United States" company. Congress declared victory and the country's economists and business community worry about the effect of the deal collapse on the position of the United States in the global trading system. Ah, now the lawyer's take over. What does it mean to transfer operation to a United States company? Congress and the press is assuming that Dubai Ports will sell its terminal operations in six United States ports to a United States shipping or terminal company. Names of purchasers are bantered about (Eller & Co., SSA Marine Inc., Marine Terminals Corp.??). Not so fast. The careful language of the press release could mean that Dubai will drop its United States operation into a wholly-owned subsidiary or into a joint venture between Dubai Ports and an American finance company. The structure of the subsidiary will isolate the board of directors from any influence by Dubai Ports; Dubai Ports will not "control" the sub. There is ample precedent for such structure our defense industries. The Department of Defense has approved acquisitions by foreign companies of United States defense related industries under such structures. Congress will then have to get into the business of regulating business structure. Stay tuned. This is not over.
Stanford Corporate Governance Center
Standford University is creating a new Arthur and Toni Rember Rock Center for Corporate Governance. The Center is financed by a $10 million gift from a Silicon Valley venture capitalist, Arthur Rock and his wife. Two law professors, Robert Daines and Joseph Grundfest will run the Center.