Regulatory bodies shouldn’t make special deals with conglomerates, conference told

The CRTC and other government regulatory bodies shouldn’t cave into pressure from large conglomerates when faced with difficult regulatory and policy conundrums, a communications law conference was told last week. This was one of the key arguments made by Chris Taylor, an Ottawa-based communications lawyer, who presented a paper on communications regulation in the near future, The Shape of Things to Come: Regulatory Choices in Communications Over the Next Five Years. During his 30-minute presentation to the New Developments in Communications Law and Policy conference in Ottawa April 26, Taylor highlighted the effect of consolidation within the industry, the presence of foreign players, the Internet and current regulatory mechanisms. Benefits of Mergers? The Proof Points to the ContraryA 1999 KPMG study of mergers showed that 17% of the ones studies added values, while 30% returned nothing and a staggering 53% of mergers actually destroyed value. A joint study by Daimler and Chrysler in 1998 concluded that 73% of all cross-border mergers are unsuccessful. In 1995, Mercer Management Consulting and Business Week found that out of the 150 companies that merged between 1990 and 1995, a majority failed to provide shareholder return comparable to their peers over a three year period. The Economist Intelligent Unit found in 1996 that 70% of the 150 mergers studied failed to live up to expectations. That same year, Coopers and Lybrand (now PricewaterhouseCoopers) found that 66% of the 125 mergers it studied were financially unsuccessful. Source: The Shape of Things to Come: Regulatory Choices in Communications, Chris Taylor, April 2002 He said that the vertical and horizontal consolidation that has taken place within the communications and media sectors over the last number of years has yet to prove its benefits. The CRTC has been blinded by the hype that these companies have been talking. Taylor noted that if such transactions were proposed in the U.S., they would not have passed the test of U.S. anti-trust laws. He used several statistics to prove this point. Despite several royal commissions and studies over the years warning against cross-ownership or concentration in the communications sector, a high level of consolidation, both horizontal and vertical, has occurred in recent years. Since the mid-1990s, however, the CRTC has opted for regulatory safeguards as a way to address public policy concerns over this high degree of concentration. But Taylor concludes that public policy concerns should be above the "hyped" benefits of a particular merger or consolidation, and the CRTC shouldn’t cut special deals for struggling conglomerates. "Neither the CRTC, nor any other government body should bend the rules for conglomerates," he said during his presentation. Ted Rogers, president and CEO of Rogers Communications Inc., also expressed his concerns about industry consolidation during his rebuttal of Taylor’s presentation, but took a different approach. He said it wasn’t the conglomerates buying up the smaller competitors, but the disappearance of the competitive telecom service providers due to difficult economic conditions that is to blame for increasing the market power of large companies. Rogers fears that if the situation continues, there will be one dominant phone company in the country, BCE Inc. Foreign ownership rules, equal access to pipes Taylor also expressed skepticism of the potential benefits of lifting or relaxing current foreign ownership limits. If foreign ownership limits were raised, it is more likely that American carriers would simply buy up Canadian ones, not just invest in Canadian operators as some have suggested would happen (see story on in this issue for in-depth look at the foreign ownership issue). Another issue Taylor said will need to be addressed in the future is that Internet pipes will need to be available to as many companies as possible, and that access to those pipes cannot be controlled by a limited number of large players. The CRTC is going to have to ensure that competitive ISPs have access to both narrowband and broadband facilities on an equal basis, he said. Of the regulatory mechanisms that Taylor explored in his presentation, he reserved some comments for the CRTC’s compliance enforcement record. "Compliance is not optional," are the words Taylor used to describe what the commission’s enforcement policy should be like. "With all areas of communications now open to competition and the pace of change as swift as ever, it is extremely important that the CRTC not only make the appropriate regulatory choices, but also enforce its rules in a timely and effective manner," Taylor wrote in his paper.

Regulatory bodies shouldn’t make special deals with conglomerates, conference told

News | April 30, 2002

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