Monopolies Would Gain Even Tighter Grip With Sprint Deal
Excuse me, is there an echo on this line?
Barely a year ago, British Telecom announced that it would invest $5 billion to buy a 20% stake in MCI. Now Deutsche Telekom and France Telecom--Europe’s largest state-run telecommunications monopolies--say they’re prepared to ante up $4.2 billion for a comparable share of Sprint. (You remember Sprint--the No. 3 long-distance company that has apparently recovered well from having the merger hots for Electronic Data Services.)
What’s next? Japan’s Nippon Telegraph & Telephone investing $10 billion for a fifth of AT&T;? Apparently, imitation is the most sincere form of flattery when you’re trying to build a global telecommunications network. A Sprint stake unquestionably gives the two telecommunications giants a tremendous opportunity to grow in the United States.
“In a sense, it’s an encouraging move for us,” a British Telecom spokesman says. “It very much vindicates our strategic view of the world.”
But watch those stiff upper lips tremble with outrage when the conversation turns to telecommunications politics. Britain’s telecom mandarins are stunned by the sheer gall of the French and German monopolies in bidding billions for Sprint as they piously proclaim the relative openness of their own networks. That’s utter nonsense, say the Brits, and the United States would be crazy to believe it.
“We will be absolutely amazed if your Department of Justice and the Federal Communications Commission let this deal go through without getting tremendously huge changes and concessions from both France and Germany in the accessibility of their telecommunications markets,” the spokesman says.
By any measure, Britain’s telecom marketplace is now among the most open and competitive in the world. The Baby Bells actually have greater freedom to cut deals and forge alliances here than they do in America. In fact, foreign telephone companies here actually offer cable television service, and cable TV companies have begun to offer telephone service--just what America’s cable TV and telephone companies are clamoring to do back home. (That British consumers are often less than thrilled with the quality of these hybrid services is seen as beside the point.)
The U.S. Justice Department approved British Telecom’s bid to buy into MCI in large part because the British telecommunications market invites and encourages competition from the world over. By contrast, “both France Telecom and Deutsche Telekom are monopolists,” says the British Telecom spokesman, “and we would think that should be a handicap in their efforts to gain approval for their proposal.”
AT&T--no; stranger to monopoly--has similarly criticized the proposed European investment in Sprint.
Is all this just corporate posturing by nervous competitors who are greedily eyeing each other’s markets? Or are there genuine economic and regulatory principles at stake? There should be no doubt: British Telecom and AT&T; are absolutely right in opposing this deal, and if the Clinton Administration’s trustbusters aren’t too busy figuring out ingenious ways to break up Microsoft, they should make it clear that state-sanctioned multibillion-dollar monopolies do not gain easy access to a competitive American market.
Why should a Franco-German alliance be allowed to practice as a predatory monopolist and use the revenue gained from its home markets--Germany and France are the two largest telecommunications markets in Europe--to subsidize a Sprint in competition with AT&T; and MCI in America and the rest of the (deregulated) world? That is a totally unfair competitive advantage.
Indeed, you could make a case that the French and Germans can easily afford to invest more than $4 billion for a piece of Sprint precisely because they pass along any costs to their captive subscribers. Monopolies are good at that. Just ask the folks who ran the old Bell system.
The sad truth is that, while Europe is supposed to become a single market, telecommunications was granted an exemption by the European Union until 1998 at the earliest. In other words, the French and German telecommunications monopolies are trying to exploit a loophole in the rules to secure an unfair competitive advantage in what will be a $300-billion market by the end of the decade.
Particularly annoying, of course, is the stubborn insistence by the French and Germans that their telecommunications markets are open. As any multinational company in those countries will tell you, France and Germany are hostile to innovations introduced from outside; their prices are outrageously high, and there isn’t even domestic competition to look to for relief.
If the Clinton Administration really cares about free and fair trade, it will take this opportunity to get a schedule of market access in France and Germany before allowing a Sprint investment. Or better yet, let Sprint take the money--just don’t allow anyone from France Telecom or Deutsche Telekom to serve on the Sprint board or exercise any sort of management influence.
