Cisco’s Enviable Position
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

Cisco announced plans last Friday to acquire Scientific-Atlanta, a deal that will likely gain approval from the federal government with few if any conditions.
With a market capitalization of $106 billion, Cisco is one of the largest electronic equipment manufacturers in the world and likely the largest supplier of Internet communications equipment. Scientific-Atlanta, with a market capitalization of $6 billion, is the largest American manufacturer focused on cable-related equipment.
After the merger, Cisco will be in the enviable position of being a major supplier to rivals in the competing cable and telephony industries.
The cable industry competes with the telephone industry to provide broadband and video services to residential consumers. Cisco is a key supplier to the telephone industry, including SBC and others. Scientific-Atlanta is a key supplier to the cable industry, and its video technology is increasingly important to the Internet equipment offerings of Cisco.
It is easy to describe scenarios in the broadband war between telephony and cable where either telephone companies such as SBC and Verizon lose, or cable companies such Comcast and Time Warner lose. It is difficult, however, to foresee a scenario where the newly merged Cisco loses.
The Department of Justice will review the merger of Cisco and Scientific-Atlanta under the Clayton Act to determine whether the acquisition will lead to an anticompetitive increase in market power for Cisco. If the Department of Justice looks at broad markets for manufacturing communications equipment, the conclusion may likely be that the acquisition would not make the markets less competitive. Worldwide, communications equipment manufacturing is intensely competitive. Firms with familiar names – such as Lucent, Motorola, Nortel, Siemens, and others – compete with many other firms with less familiar names.
Mere capability to manufacture electronic communications equipment is not the most relevant consideration. Every company has specialized product lines. It is the overlap and uniqueness of these specialized product lines for Cisco and Scientific-Atlanta, rather than general manufacturing capabilities, that the justice department will likely examine in a merger review. Complaints about the loss of second source suppliers will raise concerns at justice while an absence of customer complaints will pacify the department.
Justice has shown little appetite to challenge, much less block, major acquisitions among telecommunications or computer equipment manufacturers in recent years, although there are a few exceptions. In 2000, the department modified the terms of JDS Uniphase’s acquisition of E-TEK. In 1997, the department entered a consent decree for IBM’s acquisition of Storage Technology.
If its only governmental review comes from the justice department, Cisco will be home free. It faces greater problems, though, if other government agencies, at either the federal or state level, decide to review the merger.
The Federal Communications Commission rarely reviews mergers of equipment manufacturers, and Cisco is likely to be no exception. Scientific Atlanta appears to have few if any wireless licenses at the FCC, but it has dozens of equipment authorizations. Cisco has more than 320 such authorizations. The FCC has not reviewed such authorizations in the context of merger review, but no statute appears to preclude such a review. Most recently, in the SBC-AT&T merger and the Verizon-MCI merger, the FCC imposed a few conditions in addition to those already agreed to by the justice department.
State antitrust or regulatory reviews may be more threatening to Cisco. The California Public Utility Commission last Friday completed its review of both the SBC-AT&T merger and the Verizon-MCI merger and required the merging parties to freeze certain rates and contribute to some of the state’s favorite charities. These merger conditions were gratuitous and embarrassing for all concerned. If the mergers were anticompetitive, the state commission should have required divestitures, as neither rate freezes nor philanthropy will remedy anticompetitive harms. If the mergers were not anticompetitive, the remedies seem utterly unnecessary.
Acquisitions in the communications equipment manufacturing sector, of smaller companies with useful innovations, are common. Not all go well, but poor outcomes are usually the result of poor business judgment (e.g., IBM’s acquisition of NCR in the 1990s), rather than government intervention. The latest proposal by Cisco may eventually illuminate the business judgment of the Silicon Valley giant.
A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.