Today’s
mega-merger combines CenturyLink and Level 3 Communications, two major players,
but surely not on most consumers’ radar screens. CenturyLink has acquired an impressive array
of companies over the years including the AT&T spunoff Bell Operating Company,
formerly known as US West and before that, Mountain Bell. Level 3 owns and operates one of the largest
inventories of domestic and international fiber optic transmission lines in the
world. If you run a traceroute for just
about any web link, Level 3 would have at least one line in the list of networks
traversed. The company also serves as the
major Content Distribution Network for Netflix.
Sponsored researchers may wax poetic about the virtues of vertical and horizontal integration and how it only takes 2 or 3 players to achieve a competitive market. They cannot guarantee that a fully integrated company can achieve best practices, much less ok practices, in each of the industry sectors they choose to operate.
Telecommunications
history provides countless examples of how large companies unilaterally opted
to divest non-core assets including Time Warner (print media, films, cable
television operators) and General Electric (NBC). Are their spun off ventures worst off?
In this
time of low interest rates, massive retained earnings and the urge to acquire
scale, this merger will generate little concern, or interest. One can dismiss all the hype about efficiency,
scale and synergy gains and still tolerate a merger of this sort, because of
how much it differs from AT&T’s recent announcement of its intent to
acquire Time Warner.
With the
exception of CenturyLink’s first and last mile, local exchange services and
middle mile links between businesses in the Mountain West, both this company
and Level 3 operate in mostly competitive markets, or at least ones that lack
substantial barriers to market entry. There
are existing facilities-based competitors and technological innovations support
new ways to expand transmission capacity and use new radio spectrum options.
In the
vernacular, both companies face inter-modal and intra-modal competition. Inter-modal competition occurs when there are
multiple content transmission options: fiber optic cables, copper wire,
satellites, terrestrial microwave radio, Wi-Fi, Wi-Max, 4G and 5G cellular
radio, etc. Intra-modal competition refers to the availability of multiple
carriers in each of the above content transmission media.
I am not
thrilled when companies have easy and expedient ways to buy market share, instead
of earning it through superior business skills.
I wish companies had to devote sleepless afternoons sharpening their
pencils and the value position of the goods and services they offer. On the other hand, we should realize that bigness and unlimited
access to capital does not guarantee success.
Sponsored researchers may wax poetic about the virtues of vertical and horizontal integration and how it only takes 2 or 3 players to achieve a competitive market. They cannot guarantee that a fully integrated company can achieve best practices, much less ok practices, in each of the industry sectors they choose to operate.
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