Telecommunications:

Process by Which Mergers of Local Telephone Companies Are Reviewed

RCED-99-223: Published: Aug 20, 1999. Publicly Released: Sep 17, 1999.

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Pursuant to a congressional request, GAO reviewed the: (1) standards and processes under which mergers between local telephone companies are evaluated and approved by governmental bodies; and (2) implementation of this process in the Bell Atlantic-NYNEX merger, and the effects of the merger that can be observed.

GAO noted that: (1) several governmental bodies review mergers between local telephone companies using varied standards and processes in their analyses; (2) at the federal level, these mergers are reviewed by the Department of Justice (DOJ) and the Federal Communications Commission (FCC); (3) using guidelines that have been developed to evaluate the likely effects of a merger on market concentration and other competitive factors, DOJ, acting as the enforcement agency to review mergers under federal antitrust law, assesses whether a merger may substantially lessen competition within the industry; (4) if DOJ determines that a merger will substantially harm competition and therefore violates antitrust laws, it can bring a court action--in which it bears the burden of proof--to stop the merger; (5) in contrast, FCC, the federal agency that regulates the telecommunications industry, primarily examines whether the transfer of licenses and lines from one company to another in a merger is in the public interest; (6) to determine if a merger is in the public interest, FCC considers several factors, such as the effects of a merger on: (a) competition in the industry; (b) FCC's ability to enforce its obligations under the Communications Act; and (c) the deployment of advanced telecommunications services; (7) state attorneys general and some state public utility commissions also have the authority to review mergers between local telephone companies; (8)the Bell Atlantic-NYNEX merger took place in August 1997 after review by several governmental bodies; (9) the merging companies' prior status as regulated monopolies complicated the merger review process; (10) after conducting antitrust reviews, DOJ, a task force of state attorneys general, and individual state attorneys general did not challenge the merger under antitrust law; (11) while FCC and all the reviewing state utility commissions allowed the merger to go forward, FCC and 4 of the 5 reviewing state commissions imposed conditions on the merged company; and (12) while few market effects on the merger are identifiable, Bell Atlantic officials told GAO that the company has realized the cost savings it expected to gain from the merger.

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