January 6, 2006 Verizon and MCI merged. The merger had been under scrutiny for over a year. Many outside groups, specifically The American Antitrust Institute took an interest in the impact the merger would have on market power for Verizon, one of the larger firms of the market. Prior to the merger the wireline market had an HHI of 1759.10. The merger increased the market concentration by 736 points on the Herfindahl-Herschman Index.
Advocates of antitrust argued that a merger between MCI and Qwest would have been the best for the market. Even though market concentration would have increased more under this merger (1047 point increase), it would have kept market power roughly the same. Verizon and MCI have their main focus in the same geographic region, while Qwest’s is different.
Another major concern is for special access service – provides dedicated, high-capacity lines that circumvent the publicly switched network; they are essential for government, communication providers, and large institutional users. Verizon is the major supplier and MCI has the largest client base. Their merger would be a vertical integration that would create a duopoly in this market with Verizon as the dominant firm.
It is interest to look at all the different factors that affect market power and see how different mergers affect these factors differently. The FCC decided that the merger did not increase market power beyond an acceptable limit because the merger did go through, see C|net news (http://news.com.com/Verizon+closes+book+on+MCI+merger/2100-1037_3-6003498.html ).
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It’s no surprise that this merger took this long to happen. The telecommunications industry is already fairly concentrated – no doubt many analysts are surprised that regulators gave it the go-ahead. That being said, this is probably a trend for the market. With the rapid advances in technology, a large firm that is involved with all aspects of the telecommunications business makes sense. The changing technology and integration of services is promoting a highly concentrated market. It will be interesting to see how the market and its regulators will react in the coming years as the industry becomes more and more advanced.
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