Merger
evaluation, although an integral component of competition law
enforcement in most jurisdictions, remains a hotly debated issue. Some
even question the very existence of it, especially in developing
countries. This is not surprising as merger evaluation involves
maintaining delicate balance between different interests and concerns.
It depends a lot on economic analysis. But it is not uncommon for
different economists to come to different conclusions in the same
case. Controversy therefore is inevitable.
In
not so distant past, differing decisions in the GE-Honeywell merger
case led to a high degree of schism between the US and the EU who
otherwise have been in a cooperative mode for quite some time in the
area of competition policy enforcement. The
conflict has now been resolved to a great extent. They agreed in principle for simultaneous review of
mergers, so that the merging companies do not have to face
uncertainties in one jurisdiction after getting clearance in another.
This was achieved when officials from both sides of the Atlantic met
at the sideline of the first annual conference of the International
Competition Network (ICN) held recently at Naples, Italy.
What
was missing was whether such a cooperative effort would include
developing and other countries where the merging firms operate. Often
parent body mergers lead to an absolute dominance when their
subsidiaries merge automatically in a developing country. That creates
problems of a different nature. In a globalising world, merger review
cooperation between two giants will be incomplete if it doesn’t take
into consideration the effects in all countries.
Interestingly,
the ICN, which is an informal network of competition agencies from
around the world that addresses competition enforcement and policy
issues of common interest, agreed to adopt a common set of guiding
principles for merger notification and review. A study group of the
ICN has already identified the possible set principles and there was
almost a consensus on the set except on the principle of
non-discrimination. The view expressed in this regard was that
countries, especially the developing and the least developed ones,
might treat domestic and foreign companies differently on grounds of
national/public interest and promotion of national champions.
What
was striking in these debates and discussions is that they have mostly
been dominated by business interests and concerns and near-absence of
consumer concerns. Ironically, the very existence of merger review in
the competition law enforcement mechanism is mainly to protect and
promote both economic and consumer interests. Of course, unbridled
merger activities, may sometimes enhance efficiency in the short run
but are fraught with the danger of promoting inefficiency in the long
run due to lessening of competitive pressure.
The
recent announcement of Mario Monti, the EU competition commissioner,
to involve European consumer groups in the merger review process, thus
assumes critical significance. He has also promised to provide
financial support to such groups if they require. This is a welcome
step as there has been a fear that the US has recently been giving
more prominence to business interests in its merger review process,
and simultaneous
review of mergers may lead to neglect of consumer interests even in
the EU. Monti’s announcement should be an eye opener for many other
competition authorities, especially in developing countries, which
have not taken the consumer movement seriously so far!
Happy reading!
Pradeep
S Mehta, Editor
I.
Project
Progress
The
7-Up Project,
as it is popularly known, is heading towards its conclusion now. The
activities and the deliverables have started taking a final shape.
During the months of September and October 2002, the phase-II outputs
were finalized and some beyond the project activities were planned.
Following is a brief report:
1.1
Phase-II Country Reports
The case studies taken up during the second phase of the project were
given the form of Phase-II Country Reports. These
reports are not just a collation of the
case studies but carry some sort of synthesis. The drafts are being
worked upon and
the reports would be printed soon.
1.2
Phase-II NRG Meetings
The
draft phase-II country reports were deliberated upon at the phase-II
NRG meetings organized in each partner country. These reports are now
being revised on the basis of the comments and suggestions that
emerged at the NRG meeting.
1.3
Briefing Papers and Handbooks
To
carry the objectives of the project forward and to increase its
outreach, it has been planned that each project partner will prepare a
handbook or a briefing paper on competition related issues. Work on
the same has started and the documents would be prepared before the
Final Meeting of the Project.
1.4
Final Meeting
Preparations
are underway for the Final Meeting of the project. The Symposium,
entitled “Competition Policy and Pro-Poor Development”, will be
organized on 19th February 2003 in Geneva, Switzerland.
II.
Major News
& Views
1.
EchoStar and Hughes Mull Concessions
EchoStar
and Hughes Electronics, the satellite TV operators, are preparing to
offer significant concessions to the US antitrust authorities in a
last-ditch effort to win approval for their proposed merger.
The
two companies have agreed to discuss possible "major
revisions" to the merger with the Department of Justice. The
companies have been given until the end of the month to come up with
changes in the structure of the deal which would make it acceptable to
regulators.
The
offer of concessions, disclosed in a
filing with the Federal Communications Commission, is the first sign
that EchoStar and Hughes
are prepared to negotiate to win approval for the deal, which is
facing vehement opposition from consumer groups and rival media
companies.
The
merger would create a single satellite TV operator in the United
States, reducing the competition for pay-TV services to two in the
areas served by cable, and creating an effective pay-TV monopoly in
rural regions.
Charlie
Ergen, the EchoStar chief executive who
snatched Hughes from under the nose of
his rival Rupert Murdoch last year, spent two days defending the
deal's merits to the DoJ and is preparing to give further evidence.
EchoStar
would not discuss the possible remedies that would be on offer,
although antitrust experts have suggested the company could propose
spinning off rural customers to another company. Cablevision has also
proposed forcing EchoStar and Hughes
to divest 17 satellite frequencies, allowing the Long Island cable
operator to launch a rival service.
However,
most antitrust experts do not believe the concessions
will be enough to prevent the authorities from blocking the deal,
potentially opening the door for Mr Murdoch to snap up Hughes
at a lower price.
EchoStar
on Monday asked the FCC to delay its decision until after the DoJ
rules on the merger. Michael Powell, the FCC chairman, has hinted that
the Commission's decision was imminent on the public interest aspects
of the deal. EchoStar and Hughes
also asked for the FCC to hold a public hearing on the merger, as it
has with previous large deals such as AOL's takeover of Time Warner.
"There
are many important consumer benefits at stake," EchoStar
said. "So we are asking the FCC not to rush to judgment before
the DoJ completes its review."
(Peter
Thal Larsen, Financial Times, 07.10.02)
2.
Letters to the Editor, Financial Times
a)
“I appreciate your interest in covering the pending merger
between EchoStar and DirecTV.
“There is a lot at
stake in this merger, namely, whether
the US government will allow two large satellite
companies to merge, so they present a more viable competitor to cable
television. Moreover, the federal review will
determine whether millions of rural
Americans, including many small business owners, continue to be
without access to high-speed internet. This merger
is the only hope rural citizens have of
receiving this emerging technology, which the Bush administration is
keen to expand.
“Why shouldn't two
companies, whose combined pay-television market share is only 18 per
cent, be allowed to merge to form a stronger competitor to cable
television, which controls 80 per cent of the pay-television market?
What is wrong with that?
“The best solutions
come about when there is strong competition in the marketplace. This
is not the case now in the pay-television industry. By approving the merger
of EchoStar and DirecTV, the federal government would be allowing the
free market system to work in the interests of consumers.” (Karen
Kerrigan, Chairman, Small Business Survival Committee, Washington, DC
20036, US; 10.10.02)
“I was troubled to
read that federal regulators with the Federal Communications
Commission and Department of Justice are prepared to reject the
proposed merger of EchoStar and
DirecTV.
“If
this proposal is rejected, the federal government will
be left (using our tax dollars) to pick up the tab for linking up rural
America to the high-speed internet.
“With the rapid
expansion of technology, the government is trying to keep pace in
making the latest developments available in all parts of the country.
Unfortunately, owing to burdensome regulations and other obstacles,
its methods have proved to be ineffective and costly.
“In fiscal 2002,
Congress appropriated $700.5mn for the education technology block
grant programme, $32.5mn for the Department of Education's community
technology centres programme and $15mn for the Department of
Commerce's technology opportunities programme. The merger
would help eliminate government interference in this emerging
marketplace.
“With the
near-collapse of the competitive telecommunications industry, the
regional Bell companies now control 86 per cent of the DSL broadband
market and prices are rising as competitive options fall.
“The combined
EchoStar/DirecTV satellite entity would
ensure that no consumer would be a captive customer of the Bell
giants, even in areas that were not
served by cable television. This is clearly a merger
that would actively serve the public interest.” (Thomas
A. Schatz, President, Citizens Against Government Waste, Washington,
DC 20036, US; 10.10.02)
IV
Forthcoming Events
1. Asia Pacific
Seminars on Investment and Competition, 24-26 November 2002, New
Delhi, India
CUTS CITEE is
organizing a one-and-half-day Regional Seminar on 24-25 November 2002,
on Investment under its project “Investment for Development”. The
objectives of the seminar are to share research findings of the
project with the civil society and disseminate information on the
various issues relating to Foreign Direct Investment.
The Regional Seminar on
Competition Issues would be organized on 26 November 2002 and will
focus on competition regimes of a few select countries in the Asia
Pacific region. The meeting will deal with regional, international and
multilateral approaches.
Another
Research Seminar on Foreign Direct Investment and Development – The
Policy Dimension, would be organized on 26 November 2002,
where researchers from the region will share their work in the area of
investment in their domain and deliberate on 2003 UNCTAD World
Investment Report.
2.
Latin America
Regional Seminar on Invesment for Development, 4-5 December 2002, Sao
Paulo, Brazil
CUTS-CITEE
is organizing this seminar under the project “Investment for
Development” to share research findings of the project with the
civil society and disseminate information on the various issues
relating to Foreign Direct Investment (FDI). The project researcher
from Brazil will present his research findings.
