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California Regulators Threaten Benefits of Telecommunication Mergers; Forcing a Divesture of Assets, Price Caps Will HurtConsumers, Shareholders25 October 2005
American Shareholders Association (ASA) today criticized the California Public Utilities Commission for suggesting they will impose conditions on telecommunications merger approvals by forcing a divesture of certain assets and possibly imposing price controls. Clearance for the mergers is vitally important for consumers and the economy. The conditions, however, appear to be unnecessary and may actually hurt consumers and economic growth by stifling new investment.
ASA has recently issued a policy brief which demonstrated the negative economic impact of a 2004 Department of Justice action to stop a proposed Oracle/PeopleSoft merger. When the government intervened, Merger & Acquisition (M&A) activity declined by $150 billion over six months and shareholders lost billions of dollars of market value. As soon as the courts threw out the government's case, both M&A activity and shareholder wealth resumed back to normal levels. This demonstrated government agencies can have a significant impact on growth, jobs, and investment.
The ASA report examined the upcoming SBC-AT&T and Verizon-MCI mergers as an example, and points out that M&A activity is providing greater efficiency to the American economy. "Changing consumer demands are forcing companies to consolidate to provide a range of services to meet the growing number of technical products. As a result, companies are competing not only on price and customer service but also on features and technology across different industry sectors," the brief points out.
ASA further warns of regulators for ignoring the realities of today's marketplace and continuing to "view the Verizon and SBC proposed mergers in terms of twenty years ago."
ASA Executive Director Daniel Clifton commented, "Our research touches on the very current issue the Public Utilities Commission is considering -- whether to require the merging telecom carriers to divest facilities as conditions of their mergers. An unnecessary divesture of assets will result in less investment, growth, and jobs. And this in the long run will raise the prices for consumers."
"The idea that imposing these conditions under the guise of protecting the consumer is simply reverse thinking -– since deregulation, long distance prices have fallen by as much as 67 percent in some markets," continued Clifton. "To lower prices and boost economic growth, the telecommunications industry needs less regulation, not more."
"It is the ASA's position," Clifton said, "that the consolidation of the telecommunications industry will raise the standard of living of all Americans by increasing productivity and boosting economic growth.
"The Public Utilities Commission should approve these mergers without unnecessary and economic growth killing conditions."
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The American Shareholders Association is a non-partisan, not-for- profit organization dedicated to analyzing public policy impact shareholders. For more information please contact Daniel Clifton at 202-549-7803 or by e-mail at dclifton@americanshareholders.com.
Source: U.S.Newswire
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