Justice Dept. Approves Merger of PacTel, SBC Communications

The Justice Department on Tuesday gave the green light to the $16-billion merger of Pacific Telesis Group and SBC Communications Inc., removing one of several regulatory hurdles that the landmark deal must clear before it can be finalized.

In a separate decision, the department ruled that US West Inc. can proceed with its $11.8-billion acquisition of the nation’s third-largest cable operator, Continental Cablevision Inc.

The actions were the latest in a string of favorable rulings for the telecommunications industry, which is undergoing massive consolidation in the wake of a deregulation law enacted earlier this year that allows telephone, cable TV and broadcasting operators to enter one another’s markets.

In approving the deals following what observers said was only a routine review, the Justice Department indicated again that antitrust laws are not likely to be much of an obstacle to telecom mergers. The proposed combination of British Telecommunications and MCI Communications Corp. announced Sunday is expected to enjoy similarly rapid approval by antitrust authorities--though other regulators may take a closer look.

The PacTel-SBC deal, under which California’s dominant phone company, Pacific Bell, would become a subsidiary of Texas-based SBC, now faces scrutiny from the Federal Communications Commission, which must approve the transfer of PacBell’s communications licenses to SBC. The agency is expected to complete its review later this month.

The proposal also faces review by Nevada regulators and the California Public Utilities Commission, which began hearings on it last month and is not expected to make a final ruling until early next year.

Although the Clinton administration has boosted antitrust enforcement funding by more than $10 million this year--enabling regulators not only to increase their staffing but to also hire outside attorneys and other help--critics say regulators haven’t been tough enough with big business.

They note that neither the Justice Department, nor its neighbor, the Federal Trade Commission, have outright blocked any major telecommunications deals. And even in cases where regulators have insisted on changes, companies such as Walt Disney Co., Time Warner Inc. and US West have readily complied in order to proceed with transactions that remained mostly intact.

The Justice Department approved the PacBell-SBC deal with a one-sentence announcement, saying the combination “did not violate the antitrust laws.”

Approval of the US West-Continental deal was a bit more complex. Under a decree that must be approved by the U.S. District Court in Washington, Englewood, Colo.-based US West can proceed with its acquisition of Continental, a Boston-based cable operator with 4.2 million subscribers. But by 1999, Continental but must divest its 12% interest in Teleport Communications, an upstart phone company that competes against US West in several major cities.

Last month, the FCC also gave its approval after ordering Continental to sell 11 cable systems with 300,000 subscribers to comply with a rule prohibiting phone companies from owning cable firms in their service areas.

While the immediate impact of the consolidation trend on consumers is minimal, consumer advocates worry that in the long run it could result in fewer competitors and thus higher rates and less choice.

Critics acknowledge that most of the deals do not pose a classic antitrust problem by attempting to combine rival companies competing for customers in the same market. Pacific Bell’s California and Nevada service areas, for example, are hundreds of miles away from SBC’s stronghold in Texas and the Southwest.

Proponents say the mergers will benefit consumers by enabling giant companies to compete in one another’s markets.

But opponents of consolidations say regulators do consumers a disservice by looking only at the current fledgling telecommunications market rather than down the road to anticipate potential anti-competitive behavior.

“Antitrust laws are very capable of dealing with existing markets and existing players but do not have as straightforward an ability to deal with markets that might emerge in the future,” said Gene Kimmelman, co-director of the Washington office of Consumers Union.

The Clinton administration’s antitrust efforts--which until this fall were largely spearheaded by Anne K. Bingaman, a former plaintiff’s attorney who resigned this month as the Justice Department’s assistant attorney general for antitrust--have also been marked by cautious compromise rather than hard-nosed confrontation, experts say.

“By and large the Clinton administration’s policy has been to look for resolution short of litigation; they have been very reluctant to litigate a merger case,” said Charles F. Rule, a Washington antitrust lawyer who headed the Justice Department’s antitrust division from 1986 to 1989.

Antitrust enforcement, however, may be headed for a change with the departure of Bingaman and the growing influence of Robert Pitofsky, the respected former law professor who now heads the FTC. In addition, regulators have gained valuable experience reviewing the plethora of recent telecommunications deals.

“As antitrust analysis gets smarter about understanding the competitive effects of transactions, I think you will see more deals may be challenged,” said James R. Loftis, a Washington antitrust lawyer who serves as chairman of the American Bar Assn.’s antitrust section.