Anticipated acquisition by SBC Communications, Inc. of AT&T Corporation

Affected market: Telecommunications

No. ME/1584/05

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, assessment, and decision.

The OFT's decision on reference under section 33(1) given on 23 August 2005. Full text of decision published 30 August 2005.

Square brackets indicate information removed or replaced for confidentiality reasons at the parties' or third parties' request.

PARTIES

SBC Communications Inc (SBC), a Delaware corporation, provides voice and data telecommunications services, primarily within the 13 U.S. states in which SBC is the incumbent local exchange carrier. In the EU, SBC supplies business application software and services (via its subsidiary Sterling Commerce) and also derives revenue from European mobile phone operators (via its 60 per cent ownership of Cingular Wireless) for roaming services provided in the United States. SBC's EU-wide turnover in 2004 was approximately [ ].
 
AT&T Corporation (AT&T), incorporated in New York, provides long distance and international telecommunications services for the business and government sector. In the EU, AT&T provides international telecommunications services to large multinational companies and government agencies; its UK affiliate is AT&T Global Network Services (UK) B.V. AT&T's UK turnover in 2004 was [in excess of £70 million].

TRANSACTION

SBC proposes to acquire the entire issued share capital of AT&T.

JURISDICTION

SBC and AT&T will cease to be distinct. AT&T's relevant UK turnover exceeds £70 million. Accordingly, arrangements are in progress or contemplation which, if carried into effect, will result in the creation of a relevant merger situation for the purposes of s 33(1) of the Enterprise Act 2002 (the Act).

ASSESSMENT

This merger has a relatively weak nexus with the United Kingdom because there are no UK-specific issues; the relevant markets appear to be global in scope. The OFT received no concerns from UK customers. Indeed, only three other parties submitted concerns, two competitors and one industry body. Moreover, this U.S.-centric transaction is subject to very detailed review by both the DoJ and FCC, and has been cleared by the four other European jurisdictions in which it was notified. The OFT has nevertheless carefully considered those theories of harm advanced that, were they sustainable, would imply a competitive impact in the UK.

As to foreclosure in GTS, the theory of competitive harm is speculative because the OFT could not elicit sufficient supporting facts and evidence from the complainants or other market participants. Weaknesses in the theory include the following. First, it assumes U.S. regulation is fundamentally ineffective; second, it ignores prospects of competitive bypass; third, the best data available suggest that SBC-access accounts for a small proportion of GTS costs, and that AT&T has no market power in GTS; fourth, other market participants do not corroborate such concerns; fifth, in these circumstances SBC's incentive to foreclose is doubtful. Finally, the coordination theory fails to establish necessary criteria for sustainable tacit collusion.

As to global domination of Internet connectivity deriving from de-peering strategies by the merged SBC: on any estimate, SBC's unilateral position post-merger is insufficient to engage the relevant theory on its own terms. As to the novel theory that SBC/AT&T and Verizon/MCI would de-peer in tandem to share in the fruits of joint dominance of global Internet connectivity: third party inquiries permit the OFT to confirm that large, sophisticated customers have the ability and incentive to switch their business to credible IBP rivals precisely to avoid the harm that such an outcome would visit upon them. As such, the OFT concludes that coordination in this respect, even if embarked upon, would be frustrated. 

Accordingly, based on the weight of all available evidence to it, the OFT concludes that the theories of harm lack merit in this case, for a variety of reasons set out in more detail above. The OFT does not therefore believe there to be a realistic prospect of harm to competition, and hence to UK customers, that is objectively justified by relevant facts.

Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

The merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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