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The competition aspect frequently becomes the key factor to companies’ development. In the case of WorldCom and Sprint, both companies thrived in the competition with AT&T and with each other. The beneficial effects of the competitive race included developing systems capable of handling millions of customer accounts and constructing national and international fiber-optic networks. Those benefits let WorldCom and Sprint dominate the field of long-distance services. The merger of these two companies could cause harm by reducing the competition level, which might result in high prices and low quality of services for customers.
The relevant product market is the first tier of internet services. It is the fast ‘backbone’ that internet providers use to connect to instead of using direct connections. The advantages of the first-tier market include faster first-hand internet connections to the customers and higher quality services. As tier one connects domestic operations faster within the Unites States, customers are unlikely to turn to foreign providers, resulting in the United States being the relevant geographical market.
As WorldCom’s subsidiary company UUNET’s share in the overall Internet traffic in the United States, equals almost 37%, the company is already considered dominant in the Tier 1 market. Moreover, Sprint’s share comes second after WorldCom with 16% (Prince, 2014). Considering that 15 companies establish the Internet backbone and two of them could merge into one implies the risk of more than half of the shared internet traffic proceeding through one company, making it dominant amongst other companies. The merged entity would not be interested in providing efficient connections with any other IBPs, and mutually beneficial access will diminish. Overcoming this problem would require UUNET/Sprint to refuse to interconnect with new entrants or limit these connections.
Although the marginal cost of supplying one megabyte of internet access could be anywhere near zero, the amount of the used production capacities to supply infinite volumes of data speaks for itself. The overall private line market in the U.S. is valued at over $9.5 billion (Prince, 2014). Data networks that utilize the slower X.25 protocol comprise nearly $495 million of the U.S. market, and the frame relay network market values at over $3.5 billion in the United States (Prince, 2014). Evidently, the government is interested in promoting competition in long-distance services because if the dominant network would start raising their prices, restoring the market to the competitive state might need intervention from the government.
Reference
Prince, J., & Baye, M. (2014). Managerial Economics & Business Strategy (8th ed.). McGraw-Hill Education.
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