Chapter 4. Joint Ventures

• Pages: 171-224

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CHAPTER IV

JOINT VENTURES

In this chapter we examine the application of the antitrust laws to

joint ventures in telecommunications industries. The term “joint

venture” is vague, and often applied to a wide variety of business

practices. For this reason, we begin with a brief summary of the typical

forms of, and reasons for, joint ventures in telecommunications

industries. We then turn to the general treatment of joint ventures under

the antitrust laws, both by the courts and the relevant agencies, focusing

on the analytical framework for applying those laws. Finally, we

examine the specific treatment of actual telecommunications joint

ventures under the antitrust laws and the Communications Act.1

A. Types of Joint Ventures

1.

Joint Venture Characteristics in General

Joint ventures usually consist of two or more companies contributing

productive assets, technology, personnel or operations to an enterprise in

an effort to achieve efficiencies, speed innovation, enter new markets,

share costs, or spread risk. Joint ventures may lead to greater output and

lower prices, thereby increasing general welfare and benefiting

consumers.2 Although joint ventures partially align the economic

interests of the parent companies, they do so to a lesser extent than

mergers and acquisitions, which permanently fuse the merging parties’

interests. By limiting the level of integration between firms, joint

ventures can provide many of the efficiency-enhancing benefits of a

merger without eliminating all competition between the parties.

One difficulty with any analysis of joint ventures is that the term can

be used to describe a broad range of cooperative business arrangements,

1. Communications Act of 1934, as amended, 47 U.S.C. § 151, et. seq.

2. See, e.g., Northwest Wholesale Stationers, Inc. v. Pac. Stationery &

Printing Co., 472 U.S. 284, 295 (1985) (joint purchasing arrangement

“permits the participating retailers to achieve economies of scale in

both the purchase and warehousing of wholesale supplies”); SCFC

ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963 (10th Cir. 1994)

(“efficiencies created by joint ventures are similar to those resulting

from mergers – risk-sharing, economies of scale, access to

complementary resources and the elimination of duplication and

waste”).

172 Telecom Antitrust Handbook

ranging from complex corporate structures to loosely formed, temporary

business “alliances.”3 A narrower definition would describe joint

ventures as having several of the following characteristics: formed by

parent firms that are not under common control; involving the partial

integration of certain operations of the parents; having a finite duration;

operated under the joint control of the parents; receiving a substantial

contribution from each parent; and existing as a legal entity separate

from the parents.4 For the purposes of this chapter, a joint venture will

describe an arrangement displaying most or all of these characteristics.

The potential benefit to consumers from joint ventures may be

realized even when the parent firms are actual or potential competitors.

In the continuum of cooperative arrangements between competing firms,

joint ventures have been analyzed as lying somewhere between cartels,

in which competitors coordinate their behavior without integrating their

operations (see chapter V), and mergers, in which competitors integrate

their entire operations, foreclosing all opportunity for competition

between them (see chapter II).5 Under this view, what distinguishes

lawful joint ventures from violations of Section 1 of the Sherman Act6

and Section 7 of the Clayton Act7 is the partial and temporary integration

of the parent firms that generates economic efficiencies benefiting

consumers without completely eliminating competition between the

parent firms.8 Thus, consumer benefits and limited integration are not

3. See, e.g., COMPACT v. Metro. Gov’t, 594 F. Supp. 1567, 1574 (M.D.

Tenn. 1984) (“Joint ventures present a difficult concept for antitrust

analysis, defying neat classification and precise definition and, by

extension, well established rules for evaluating their competitive

impact.”).

4. See Joseph F. Brodley, Joint Ventures and Antitrust Policy, 95 HARV.

L. REV. 1521, 1526 (1982).

5. See Thomas A. Piraino, A Proposed Antitrust Analysis of

Telecommunications Joint Ventures, 1997 WISC. L. REV. 639, 659, 663

(1997).

6. 15 U.S.C. § 1.

7. 15 U.S.C. § 12(b).

8. Piraino, supra, note 5, at 663; see also U.S. DEP’T OF JUSTICE &

FEDERAL TRADE COMM’N, ANTITRUST GUIDELINES FOR

COLLABORATIONS AMONG COMPETITORS § 1.3 (2000) (distinguishing

“competitor collaborations” from mergers since collaborations are of

limited scope and temporary, thus preserving some competition among

the parent entities), available at www.ftc.gov./05/2000/04/ftc

Joint Ventures 173

only principal characteristics of joint ventures, they may also be

justifications for their existence.

Joint ventures can focus on one or more stages in the production and

sale of a product or service. Upstream joint ventures may involve

research and development, or the purchase or production of an input.

They often enable collaboration in the development of new sources of

raw materials, technologies, or products, or the lowering of input prices.

Competitors or potential competitors involved in upstream joint ventures

may achieve these benefits while maintaining competition in downstream

markets.

Marketing and sales joint ventures may create efficiencies in

distribution in new geographic, product, or service markets. Through

marketing joint ventures, the parents may lower their costs by combining

marketing operations, increase sales of complementary goods and

services by offering them in a package, or increase “mind share” by

establishing a national trade name or service mark.

Fully integrated joint ventures encompass several upstream and

downstream aspects of a line of business, ranging from inputs to sales.

Such joint ventures may take advantage of efficiencies available only to

vertically integrated companies in new geographic, product, or service

markets that could not be obtained by the parent firms on their own.

2.

Types of Telecommunications Joint Ventures

The telecommunications industry has a number of characteristics that

often make joint ventures desirable as a matter of business strategy. The

infrastructure necessary to create a land-based, satellite or wireless

telecommunications network is large, complex and expensive.

Moreover, private and business consumers expect and demand constantly

improving and cheaper technology. To meet these demands, small and

large telecommunications companies alike have worked together in joint

ventures. Only with such cooperative undertakings have companies been

able to lay the undersea cables and launch national and global telephone

systems that serve the public today. A few examples are discussed here.

a. Upstream Joint Ventures

dojguidelines.pdf [hereinafter COMPETITION COLLABORATION

GUIDELINES].