Policy Framework in Telecommunications Mergers and Acquisitions: a Comparative Analysis of Merger Review of the Fcc and the Doj/Ftc
Total Page:16
File Type:pdf, Size:1020Kb
POLICY FRAMEWORK IN TELECOMMUNICATIONS MERGERS AND ACQUISITIONS: A COMPARATIVE ANALYSIS OF MERGER REVIEW OF THE FCC AND THE DOJ/FTC By SEUNG EUN LEE A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY UNIVERSITY OF FLORIDA 2005 Copyright 2005 by Seung Eun Lee For my parents who have been with me with endless love and support throughout this journey. ACKNOWLEDGMENTS It has been a long journey since I first started my academic career as a graduate student and even since I went to Washington, D.C. last summer to obtain documents from the federal government agencies. I would like to thank Ms. Janie Ingalls and Ms. Leona Johnson at the Antitrust Document Group in the Department of Justice and Ms. Pat Foster and Mr. John Cunningham at the Federal Trade Commission. My special thanks go to my advisor and mentor Dr. Bill Chamberlin, Joseph L. Brechner Eminent Scholar of Mass Communications. He has been with me every step of the way, encouraging, supporting, and believing in me. Having a mentor like him was like having another parent who protected me during my lonely journey in a foreign country. I learned a lot from him both as a student and as a human being. I thank him for all he did for me from the bottom of my heart. I am also indebted to my committee members for their unique contributions and expertise. This research has been guided by Dr. Sylvia Chan-Olmsted specializing media management and economics and Dr. Justin Brown specializing telecommunications law and policy. It was such an honor to have Prof. Jeffrey Harrison, who is an expert in antitrust law and economics with his J.D., M.B.A., and Ph.D. in Economics, on my supervisory committee. I would also like to thank Jody, Dawne, Rachel, Nissa, and other colleagues in the Marion Brechner Citizen Access Project. Dr. Jin Young Tak, Dr. Chang-Hoan Cho, Dr. YouJin Choi, Dr. Hyojin Kim, Hyunjung Yun, and the Korean Gators in the College of Journalism and Communications are the people I would like to acknowledge. iv Last but not least, no words can express enough my gratitude for my parents and two wonderful brothers Yoonsoo and Younsung. No matter what I do or where I am, they have always stood with me trusting and supporting me. I owe all I am today to my parents. I am always proud of being their daughter. Guiding and inspiring me by living their own good examples, they are God’s loving presence on Earth to whom I will always turn. v TABLE OF CONTENTS page ACKNOWLEDGMENTS ................................................................................................. iv LIST OF TABLES............................................................................................................. xi LIST OF FIGURES ......................................................................................................... xiii ABSTRACT..................................................................................................................... xiv CHAPTER 1 INTRODUCTION ........................................................................................................1 Mergers and Acquisitions.............................................................................................1 Dual Jurisdiction in Telecommunications and Media Mergers....................................4 Different Standards of the DOJ/FTC and the FCC.......................................................6 Purpose of the Study and Research Questions .............................................................7 Organization of Dissertation.........................................................................................9 2 THEORETICAL FRAMEWORK..............................................................................11 Theories of Mergers and Acquisitions........................................................................11 Mergers Defined..................................................................................................11 Motivations for Mergers and Acquisitions..........................................................12 Efficiency .....................................................................................................13 Market power ...............................................................................................15 Diversification..............................................................................................16 Agency problem ...........................................................................................18 Horizontal Mergers..............................................................................................19 Non-horizontal Mergers ......................................................................................21 Vertical mergers ...........................................................................................22 Conglomerate mergers .................................................................................24 Antitrust Law and Economics ....................................................................................27 Relevant Antitrust Statutes..................................................................................27 The Sherman Act..........................................................................................27 The Clayton Act ...........................................................................................29 Antirust Theories.................................................................................................30 Market power, demand elasticity, and supply elasticity ..............................31 Barriers to entry............................................................................................32 vi Structure-conduct-performance paradigm....................................................33 Regulation of the Telecommunications and the Media Industries .............................37 Relevant Statutes..........................................................................................38 The Communications Act of 1934 ...............................................................38 The Telecommunications Act of 1996 .........................................................39 The Public Interest and Competition...................................................................40 Mergers in the Telecommunications and the Media Industry ....................................48 Deregulation ........................................................................................................48 Globalization .......................................................................................................49 Vertical Integration..............................................................................................50 Economies of Scope ............................................................................................51 Network Effects...................................................................................................51 Relevant Literature Review ........................................................................................53 3 MERGER REVIEW PROCESS.................................................................................56 Premerger Notification ...............................................................................................56 Evaluation of Mergers: Dual-Agency Review ...........................................................58 Merger Review of the Department of Justice and the Federal Trade Commission....60 Review Standard under Section 7 of the Clayton Act.........................................60 Merger Guidelines...............................................................................................60 Review of Horizontal Mergers ............................................................................62 Market definition..........................................................................................62 Product market definition.............................................................................62 Geographic market definition.......................................................................65 Calculating market shares and market concentration...................................65 Potential adverse competitive effects of mergers.........................................67 Entry analysis ...............................................................................................67 Efficiencies...................................................................................................68 Failure and exiting assets .............................................................................69 Review of Non-horizontal Mergers.....................................................................70 Vertical mergers ...........................................................................................70 Conglomerate mergers .................................................................................73 Merger Review of the Federal Communications Commission...................................74 Review Standard under the Communications Act...............................................75 Merger Review of the FCC .................................................................................76 Merger Enforcement and Remedies ...........................................................................80 4 RESEARCH METHOD.............................................................................................85