Indulgence often defeats the supposed intention and causes unforeseen repercussions. Legal practices and the policy precedents sometimes force me to relate them to the ugliness of human intervention in a natural ecosystem. Several instances have now been testimony to the fact that an attempt to regulate the market so as to make it conform to the modern day ethics of competition, has actually jeopardized the very purpose. Many times, just as natural processes take care of the balance in an ecosystem, market forces and trends should be allowed to dictate the dynamics of market change. The Opposition to Merger
Four years ago, vehement opposition disguised in the attire of anti-trust halted the DISH TV and DirecTV merger. This was strongly made possible by the policy makers' clout in the FCC. There were several factors that stopped the $26.2 billion combination of nation's two biggest direct broadcast satellite players.[1]
The primary argument was that the 'hostile' take over by EchoStar Communication's DISH TV of Hughes Electronics' DirecTV, will give it a market share of 91% making direct broadcast satellite market a virtual monopoly. Second, Rupert Murdoch's News Corporation that sells programming like Fox News and FX to both cable and satellite companies, lobbied with the Department of Justice to stop the merger on anti-trust grounds.[2] "Also opposing the deal was the "Western Caucus," a bipartisan coalition of members of Congress representing primarily Western and rural districts. According to a letter sent to U.S. Attorney General John Ashcroft and Michael Powell, chairman of the Federal Communications Commission, the group’s members had grave concerns that such a merger would increase costs and decrease options for their constituents who wanted direct broadcast satellite television service. The result for rural America, they wrote, would be a monopoly with essentially no hope for future entrants." [2]
Four years ago, vehement opposition disguised in the attire of anti-trust halted the DISH TV and DirecTV merger. This was strongly made possible by the policy makers' clout in the FCC. There were several factors that stopped the $26.2 billion combination of nation's two biggest direct broadcast satellite players.[1]
The primary argument was that the 'hostile' take over by EchoStar Communication's DISH TV of Hughes Electronics' DirecTV, will give it a market share of 91% making direct broadcast satellite market a virtual monopoly. Second, Rupert Murdoch's News Corporation that sells programming like Fox News and FX to both cable and satellite companies, lobbied with the Department of Justice to stop the merger on anti-trust grounds.[2] "Also opposing the deal was the "Western Caucus," a bipartisan coalition of members of Congress representing primarily Western and rural districts. According to a letter sent to U.S. Attorney General John Ashcroft and Michael Powell, chairman of the Federal Communications Commission, the group’s members had grave concerns that such a merger would increase costs and decrease options for their constituents who wanted direct broadcast satellite television service. The result for rural America, they wrote, would be a monopoly with essentially no hope for future entrants." [2]
Anti-trust camouflage
The reasons above clearly indicate an immature handling of the issue on the policy front, supported by some irrational arguments. The primary argument of 91% market share overlooks the fact the merger would constitute a mere 20% of the overall television broadcasting market where cable, and now the phone, companies enjoy a comfortable position. This would actually increase competition and force the relatively complacent cable companies to pull up their socks to stay competitive.
Second, Rupert Murdoch's cry had a different cause altogether, than that projected. First, reduction in competition in the satellite segment would naturally erode his corporation's profits in selling the programming. Second, Rupert Murdoch had lost the bid to buy DirecTV to EchoStar.
Third, rural America would naturally prefer service than the lack of it. There are several places where cable companies wont dare to even think of providing services purely due to economic infeasibility. Satellite TV would be the only possible alternative and EchoStar will obviously want to keep the pricing competitive and in sync with that offered to urban counterparts so as to tap the rural market completely. Also, the provisioning of services at rates competitive to that of cable companies in urban markets would actually up their profit in the urban segment (as satellite TV broadcast becomes more profitable in an area of increased density) and help them cross subsidize their rural services. In an essay published in the Rocky Mountain News in late January, Wallop wrote, "The satellite industry has a strong track record of serving rural areas, not with promises but with programming".
Apart from this, interveners should base their policies in a technology specific environment of reasoning. Satellite segment is ten times as risky as the cable or the telephone segment. Relatively, lot of investment and technological expertise goes into a satellite based services. This demands a soft corner for players in this segment so as to encourage future entrants and hence competition. In an open and competition encouraging market, fears of a monopolistic domination no longer hold much appeal. Entrepreneurial vigor and technology often naturally balances the market forces. For instance, just when regulators were pushing hard to discover ways to share the copper network, along came the vibrant cellular phone technology. It has now virtually and unknowingly created one of the most ideal markets upholding all the ideals of capitalism and competition. In a similar way, there are some very dynamic developments taking place in the satellite segment too. For instance, "wireless telecom entrepreneur Craig McCaw has been busy funneling billions into satellite ventures such as ICO and Teledesic. These satellite constellations would offer ubiquitous high-speed service across the globe and have attracted an impressive group investors, including Microsoft founder Bill Gates. And let's not forget about wi-fi and ultra-wideband which could revolutionize the way we communicate". [3]
The Real Concern...
The reasons above clearly indicate an immature handling of the issue on the policy front, supported by some irrational arguments. The primary argument of 91% market share overlooks the fact the merger would constitute a mere 20% of the overall television broadcasting market where cable, and now the phone, companies enjoy a comfortable position. This would actually increase competition and force the relatively complacent cable companies to pull up their socks to stay competitive.
Second, Rupert Murdoch's cry had a different cause altogether, than that projected. First, reduction in competition in the satellite segment would naturally erode his corporation's profits in selling the programming. Second, Rupert Murdoch had lost the bid to buy DirecTV to EchoStar.
Third, rural America would naturally prefer service than the lack of it. There are several places where cable companies wont dare to even think of providing services purely due to economic infeasibility. Satellite TV would be the only possible alternative and EchoStar will obviously want to keep the pricing competitive and in sync with that offered to urban counterparts so as to tap the rural market completely. Also, the provisioning of services at rates competitive to that of cable companies in urban markets would actually up their profit in the urban segment (as satellite TV broadcast becomes more profitable in an area of increased density) and help them cross subsidize their rural services. In an essay published in the Rocky Mountain News in late January, Wallop wrote, "The satellite industry has a strong track record of serving rural areas, not with promises but with programming".
Apart from this, interveners should base their policies in a technology specific environment of reasoning. Satellite segment is ten times as risky as the cable or the telephone segment. Relatively, lot of investment and technological expertise goes into a satellite based services. This demands a soft corner for players in this segment so as to encourage future entrants and hence competition. In an open and competition encouraging market, fears of a monopolistic domination no longer hold much appeal. Entrepreneurial vigor and technology often naturally balances the market forces. For instance, just when regulators were pushing hard to discover ways to share the copper network, along came the vibrant cellular phone technology. It has now virtually and unknowingly created one of the most ideal markets upholding all the ideals of capitalism and competition. In a similar way, there are some very dynamic developments taking place in the satellite segment too. For instance, "wireless telecom entrepreneur Craig McCaw has been busy funneling billions into satellite ventures such as ICO and Teledesic. These satellite constellations would offer ubiquitous high-speed service across the globe and have attracted an impressive group investors, including Microsoft founder Bill Gates. And let's not forget about wi-fi and ultra-wideband which could revolutionize the way we communicate". [3]
The Real Concern...
Hence more than anti-trust, I believe the policy makers and the guardians of legal sanity need to concentrate on anti-rust because decisions in the recent past have displayed a rust in their rational and decision making abilities. As Adam Thierer, the Director of Telecommunications Studies and Clyde Wayne Crews Jr., the Director of Technology Studies at the Cato Institute in Washington, D.C. say, "regulatory ethos today are wholly corrupt and completely at odds with foundations of a free and just capitalist system. Sadly, morality-based arguments don't get very far in Washington these days".
References:
[1] Barthold, Jim "FCC rejects EchoStar-DirecTV Merger" http://telephonyonline.com/news/telecom_fcc_rejects_echostardirectv/ October 2002
[2] Bast, Joseph "Farm Bureau endorses EchoStar/DirecTV Merger" http://www.heartland.org/Article.cfm?artId=399 May 2002
[3] Thierer, Adam and Wayne, Clade "EchoStar-DirecTV Merger Critics Propose Infrastructure Socialism in Outer Space" http://www.cato.org/tech/tk/021008-tk.html October 2002
References:
[1] Barthold, Jim "FCC rejects EchoStar-DirecTV Merger" http://telephonyonline.com/news/telecom_fcc_rejects_echostardirectv/ October 2002
[2] Bast, Joseph "Farm Bureau endorses EchoStar/DirecTV Merger" http://www.heartland.org/Article.cfm?artId=399 May 2002
[3] Thierer, Adam and Wayne, Clade "EchoStar-DirecTV Merger Critics Propose Infrastructure Socialism in Outer Space" http://www.cato.org/tech/tk/021008-tk.html October 2002
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