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U.S. Clears the Way for Antitrust Crackdown
Justice Dept. to Reverse Looser Policy of Bush Administration

By Cecilia Kang
Washington Post Staff Writer
Tuesday, May 12, 2009

The Obama administration signaled yesterday that it would take an aggressive stand against companies that engage in anti-competitive behavior, reversing looser policies of the past eight years that critics called friendly toward big firms.

Christine Varney, head of the antitrust division at the Justice Department, announced that the agency would revoke a 2008 report that made it difficult to pursue antitrust cases against corporations. She said the guidelines and lax enforcement over the past decade helped contribute to the economic crisis.

"The recent developments in the marketplace should make it clear that we can no longer rely upon the marketplace alone to ensure that competition and consumers will be protected," Varney said in a speech at the Center for American Progress, a liberal-leaning Washington think tank.

But doing so may prove difficult, observers said. The president's desire to clamp down on big corporate mergers and to guard against anti-competitive behaviors will be challenged by an economic recession that some analysts predict could lead to more pressure for corporations to consolidate, further cutting competition.

"Now more than ever, there is a confluence of challenges for the administration from an antitrust standpoint to stabilize sectors with cash-flow challenges," said Jessica Zufolo, an analyst at Medley Advisors.

While the administration's new enforcement would affect all industries, many antitrust experts said some of the more controversial cases are expected to arise from the fast-evolving high-tech and telecom worlds. Google, for example, has businesses in online video, mapping and mobile services even though its business is still mostly made up of online searches. AT&T provides wireless, video, phone and mobile entertainment services.

Varney, who served as the lead Internet lobbyist for the law firm Hogan & Hartson and was a member of the Federal Trade Commission, already is leading a review of Google's settlement with book authors and publishing companies that would allow the search giant to digitize millions of books.

The FTC is conducting a separate review of whether the boards of Google and Apple violate antitrust laws by having Google's chief executive, Eric Schmidt, sit on both boards.

By evoking an obscure rule on directors of a company, antitrust experts said, the administration is clearly signaling its intent to step up scrutiny.

During the Bush administration, nearly every high-tech and telecommunications merger before the antitrust division at the Justice Department was approved, including last year's controversial union of the nation's two sole satellite radio service providers, Sirius and XM. After a lengthy battle with the Justice Department, the software giant Oracle won approval in 2005 for its merger with PeopleSoft. Also that year, AT&T and Verizon Communications snapped up dominant market shares after mergers with BellSouth and MCI, respectively.

Verizon became the biggest wireless services provider last year with its acquisition of Alltel.

Tom Barnett, head of the antitrust division under President George W. Bush, challenged 30 mergers during his tenure and denied Google's request to join Yahoo in an advertising deal. He said the agency under Obama will face the same complex questions regarding competition on the Web that his staff did over the past four years.

"If a company is going to fail and leave the market, it may be more difficult for the agency to challenge the merger," Barnett said.

Critics said that under Bush the enforcement of antitrust violations shifted overseas to European and Asian nations that were said to be more aggressive in investigating allegations.

As early as this week, the European Commission is expected to decide whether to fine Intel over allegations that it used its dominant position in the semiconductor market to deter customers from buying chips from Advanced Micro Devices. The European antitrust regulatory body will next month also look into allegations that Microsoft tied its Web browser to its dominant operating system software, edging out rivals.

Public interest groups said consolidation in the high-tech and telecom industry has left consumers with fewer choices for cellphones and service providers, less innovation, and higher prices for broadband Internet and wireless services than in many other nations.

U.S. cellphone users pay an average of $506 a year, while users in the developed nations belonging to the Organization of Economic Cooperation and Development pay $439, Chris Murray, senior counsel for Consumers Union, said in a House hearing last week on competition in the wireless industry.

"Considering that the very same companies who this industry was supposed to compete against, telephone monopolies, have now purchased and merged their way to be the two dominant wireless companies, some serious oversight is warranted," Murray said in his testimony.

Analysts said investors are closely watching the fates of Sprint Nextel and T-Mobile, the nation's third- and fourth-largest wireless operators, which each quarter lose subscribers to Verizon and AT&T. Rumors of a merger between Sprint and T-Mobile's parent firm, Deutsche Telecom, abound for similar reasons.

Last month, Oracle announced that it planned to acquire Sun Microsystems for $7.4 billion, a transaction that would have to be approved by the Justice Department. A merger between concert services giants Live Nation and Ticketmaster is also under review.

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