Lack of e-knowledge ‘hampering’ probes

Date: 05/10/00

By Peter Chapman

A LACK of expert knowledge of Internet-sector economics is hampering the effectiveness of EU competition investigations into the wave of high-tech new media mergers, critics claimed this week.

The warning from lawyers for US telecoms firm WorldCom came as the company lodged an official appeal against a European Commission decision to block its planned multi-billion-euro merger with US rival Sprint last June.

It also comes just as the Commission is preparing to rule on the latest in a spate of complex cases involving the online industry. These include the proposed link-ups between America Online, Time Warner and EMI, and the planned merger of Canadian drinks and entertainment conglomerate Seagram with French utilities and telecoms giant Vivendi.

Officially, WorldCom insists victory in the case it has lodged with the European Court of First Instance would merely wipe the slate clean and would not resurrect its deal with Sprint. But the company's advisors have made little secret of their desire to set a legal precedent and smooth the way for other Internet firms to merge by forcing the court to highlight muddled thinking on the part of EU regulators.

WorldCom general counsel Michael Salisbury said the Commission "fundamentally misperceived both the way Internet services are provided and the highly competitive nature of the Internet marketplace". This, he argued, had led its officials to overestimate the power the merged firm would have had, or could have had, over the world's Internet infrastructure.

Salisbury said the Commission had wrongly interpreted market share statistics to conclude that the combined company would dominate the sector, had used obsolete data which ignored the entrance of new competitors and new technology, and had failed to apply a traditional 'supply and demand' analysis in assessing the Internet connectivity business.

The WorldCom lawyer also claimed the Commission should not have taken into account Sprint's involvement in Global One, a joint venture with France Télécom, since Sprint had already announced that it was withdrawing from the business. Deals in the new media and Internet sectors are currently at the cutting edge of mergers and acquisitions activity. Even Competition Commissioner Mario Monti has acknowledged the difficulties facing regulators as the the EU's economy moves from traditional 'nuts and bolts' companies to 'dotcoms'.

The anti-trust chief told a recent conference that the Commission's views were "still very much in development". But the former economist insists that 'old world' guidelines can still be applied to 'new world' cases where the Commission intervenes to protect competition in both Internet infrastructure and services. "The rules stay the same, but the application of these rules is remarkably adaptable to changing circumstances," said Monti.

A lack of expert knowledge of Internet-sector economics is hampering the effectiveness of EU competition investigations into the wave of high-tech new media mergers, critics claim.