FCC Uses Its Power to Stimulate Competition in the
Having received approval from the Justice Department and
the Federal Trade Commission, Ameritech and SBC Communications received
permission from the Federal Communications Commission to combine to form the
nation’s largest local telephone company. The FCC gave its approval of the $74
billion transaction, subject to conditions requiring that the companies open
their markets to rivals and enter new markets to compete with established local
phone companies. The combined business would control 57 million, or one-third,
of the nation’s local phone lines in 13 states. The FCC adopted 30 conditions
to ensure that the deal would serve the public interest. The new SBC must enter
30 new markets within 30 months to compete with established local phone
companies. In the new markets, it would face fierce competition from Verizon,
BellSouth, and U.S. West. The company is required to provide deep discounts on
key pieces of its networks to rivals who want to lease them. The merged
companies also must establish a separate subsidiary to provide advanced
telecommunications services such as high-speed Internet access. At least 10% of
upgraded services would go toward low-income groups. Failure to satisfy these
conditions would result in stiff fines. The companies could face up to $1.2
billion in penalties for failing to meet the new market deadline and could pay
another $1.1 billion for not meeting performance standards related to opening
up their markets. SBC has had considerable difficulty in complying with its
agreement with the FCC. Between December 2000 and July 2002, SBC paid the U.S.
government more than $50 million for failing to adequately provide rivals with
access to its network. The government noted that SBC failed repeatedly to make
available its network in a timely manner, to meet installation deadlines, and
to notify competitors when their orders were filled.
Case Study Discussion Questions
1. Comment on the fairness and effectiveness of using the
imposition of heavy fines to promote social policy.
2. Under what circumstances, if any, do you believe the
government should relax the imposition of such fines in the SBC case?