Antitrust - a new era
In boldly dropping one antitrust suit against the International Business Machines Corporation (IBM) and on the same day settling another suit against the American Telephone and Telegraph Company (AT&T) the Reagan administration has entered a new era in antitrust enforcement - in effect redefining the concept of ''bigness'' - while at the same time hastening flat-out competition between the two communications giants themselves.Skip to next paragraph
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The historic decisions now face intense scrutiny by Congress as well as the possibility of tough court challenges. But the immediate impression is that the administration's decisions were correct and that the ultimate beneficiary will be the American consumer. Not only should the decisions spur greater competition within the telecommunications industry itself. But both IBM and Ma Bell - two of the most ''conservative'' corporations in the US in the sense of cautious operating policies and risktaking - will now feel freer about venturing into new forms of enterprise.
IBM, despite its massive size, was in effect totally untouched and is now but one of many similar international firms in the computer area. Bigness may have had a nasty connotation back at the turn of the century, when US firms competed mainly in the domestic market. But that is no longer the case. In today's interdependent global economy, US companies are increasingly dependent on world markets and must maintain ' high competitive edge. Moreover, scores of smaller computer firms, both in the US and abroad, now offer a broad range of services and products outside the ''mainframe'' computer area that IBM has tended to specialize in.
In the case of Ma Bell, the world's largest conglomerate in terms of corporate wealth, the government got pretty much what it had wanted all along, namely, a splintering of the company, with two-thirds of its operating assets to be separated from the company in the next 18 months. The government's action is akin to the historic breakup of Standard Oil in the Taft administration, or the Northern Securities Company under Teddy Roosevelt.
At the same time, Ma Bell comes out a winner, despite its resistance to the breakup ever since antitrust action was brought. It retains its most profitable long-distance and manufacturing operations while divesting itself of its costly local operations. It will now be able to enter such fields as cable TV, telecommunications, and digitalized transmissions in which computers talk to computers.
Concerns are already being expressed that one unfortunate result of the breakup will be a surge in local phone rates charged by the new operating companies, since Bell's long-distance rates were in effect subsidizing local calls. The extent to which that proves to be the case is yet uncertain (though long-distance rates would drop proportionately). But Congress and state regulatory commissions will want to ensure that consumers suffer no excessive hardship from the deregulation. However, the lower costs of local service have been artificial. Asking consumers to pay a fair price for service seems to be more honest and efficient in economic terms.
One final point. Though the IBM and AT&T actions may be justified, the government ought to be more aggressive than it has been in the whole area of mergers and acquisitions. It is one thing to let a giant firm like IBM off the hook when competition worldwide has greatly increased in recent years. It is quite another thing for the government to countenance the pell-mell merger-mania that has characterized the economy this past year. Competition must remain a key goal in the giant US marketplace and the objective of government policy should be to ensure it.