Is Europe Out to Get the States?

LONDON (07/18/2000) - Not since the French banned the word "e-mail" has Europe seemed so anti-American.

Over the last six weeks, the European Union has given a big thumbs-down to a series of telecom and technology mergers driven by U.S.-based companies, from America Online Inc. - Time Warner Inc. to WorldCom Inc. and Sprint Corp.

Pointing to the global reach of these proposed deals, Mario Monti, the European competition commissioner, seems to have thrown down the gauntlet to a number of American companies with market-grabbing megamergers on their minds.

By far, the most effective strike was the ruling by the EU Competition Commission against WorldCom's proposed takeover of Sprint. Monti reasoned that yoking together the companies' significant Internet backbone holdings in Europe would give the merged entity so much power that it could effectively make decisions independent of both its competitors and its customers.

Late last week, WorldCom and Sprint formally withdrew all merger plans, officially burying any sort of union.

The EU's move to reject the deal has raised suspicions in the United States about what the Europeans are up to. Timing is a factor in the paranoia. The WorldCom-Sprint move comes on the heels of Brussels' June 19 announcement that it plans to launch a four-month investigation into the AOL-Time Warner deal.

American misgivings increased when, barely a week after nixing the WorldCom-Sprint marriage, Monti prevented Microsoft from taking a controlling stake in British cable company Telewest Communications.

So, WorldCom-Sprint fell apart because of Monti and his gang, right? Not so fast.

The Union's ruling was hardly the dealbreaker. It occurred after the U.S.

Justice Department had already said it would block the merger and after WorldCom and Sprint had formally withdrawn their application from the EU.

That said, suspicions of anti-Americanism persist nevertheless. After all, the EU hasn't demonstrated the same level of concern with similar deals involving European companies. It approved the merger of Mannesmann and Vodafone, reported to be the world's largest hostile takeover, once Mannesmann ditched its British mobile-phone operator, Orange. Of the dozen EU media and technology cases the Competition Commission has considered since June, four have focused on U.S. companies, and all four have led to extended investigations that blocked mergers, ultimately limiting U.S. control.

If there is a conspiracy afoot, plenty of observers in the United States are ready to root it out. The Washington Post even goes so far as to suggest Monti is trying to stymie U.S. companies to give European telecommunications and Internet companies a chance to catch up. Meanwhile, on the other side of the Atlantic, hard-core "Ameriphobes" were happy to see Europe apparently standing up to U.S. globalization.

But between the posturing and the transatlantic bluster, the real story behind the U.S. companies' woes has less to do with favoritism than it does the regulatory obstacle course that huge U.S. and European deals will face in the future.

Rather than gunning for American companies, the EU's Competition Commission is more likely reacting to the size of the deals being brokered. The scale of many of the latest proposed mergers is unprecedented. The companies best positioned to pull off these megadeals right now just happen to be American. But that won't be true for long.

"I don't think there are any grounds to say the commission is out to get U.S. companies," says Olivier Kaiser, chair of the competition subcommittee for the American Chamber of Commerce's EU office. "The economy in general is American these days. It just happens to be those American companies that merge. The commission is just applying the rules, but applying them to bigger mergers."

Even Microsoft Corp., which has come under European scrutiny twice in recent months, bears no grudge. It is currently facing an EU investigation for anticompetitive behavior in the packaging and sale of its Windows 98 software.

And after consultation with the EU on the company's plans to invest in Telewest, Microsoft agreed to restructure the terms of the deal so it would not have a controlling interest.

Bruce Lynn, network solutions group manager for Microsoft UK, who worked on the company's presentation to the EU, says such attention hasn't fazed his employer a bit. "Being a large company with large ambitions and large partners and large investments, we obviously fall under the scrutiny quite regularly," he says.

Indeed, Monti's regime seems to be following established EU regulations, if a little more high-handedly and publicly than the Competition Commission has in the past. Monti's spokeswoman, Amelia Torres, disputes accusations of any undue focus on American mergers. Torres says that the commission quickly turned around Vodafone's acquisition of Mannesmann because both companies had allowed adequate time for the EU review, and promptly submitted all requested materials.

The Union's attention to merger activity has been relatively steady since 1990, when the commission was given the mandate to review all mergers with global sales in excess of five billion euros and European Union sales of at least 250 million euros for each company. Out of several thousand applications submitted during the 1990s, the Directorate General for Competition blocked a total of 13 mergers; a roughly equal number of deals has been withdrawn after the Competition Commission voiced its opposition.

"In the past, there were fewer rejections of merger notifications mainly because mergers were small enough in size that they didn't have any major impact on the markets," says Kaiser. "Now [that] there are more megamergers, there will be more problems. The change in the attitude of the commission is not only because they are trying to be tougher, but because they are faced with different economics."

If the EU really is blind to a company's home address, there will be plenty of chances to prove it soon enough. Deals are getting bigger in both the U.S. and Europe, according to research from Newark, N.J.-based Thomson Financial Securities Data - with European activity outpacing U.S. activity.

Not that Brussels is unaware of the good publicity the merger decisions are generating for the commission. Ruling on high-profile deals gives Monti a chance to present the EU as a united front to the world.

"The EU is usually in the business of enlarging its competence," says Ben Duffy, spokesman for the U.S. Mission to the European Union, who notes that when the EU tried in the past to speak with one voice, the attempts disintegrated amid infighting among members. But in questions of antitrust law, "the EU has found an area of solid competence for itself," adds Duffy. "It's an area in which they have authority."

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