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Friday, July 15, 2011

Democrats' Favorable View of ATT/T-Mobile Merger

Who says Democrats are always opposed to mergers in the marketplace?

After all, late last month, more than a third of the Democratic members of the U.S. House of Representatives signed a letter to the FCC and Department of Justice that was generally supportive of the proposed merger of AT&T and T-Mobile.

As widely reported, the 76 Democrats focused on AT&T's commitment to deploy 4G wireless coverage to 97 percent of the nation. They noted: "Such a commitment will require billions of dollars in private investment, capital, and create thousands of jobs, many of which will be good paying union jobs with benefits, which will greatly contribute to our continuing economic recovery."

U.S. Rep. G.K. Butterfield said, "We are encouraging the FCC and the DOJ to consider a number of important factors during the review process, including the proposed increases in coverage to those living in rural and underserved areas."

Of course, widespread deployment of 4G wireless service would be a big plus for small businesses in terms of gaining efficiencies and being able to better compete.

It is important, therefore, to review how the wireless market has developed.

As the FCC noted in its 15th Annual Wireless Competition Report, released on June 27, wireless access has expanded and prices have fallen dramatically over the past 17 years. For example, 89.6% of the U.S. population have at least five wireless voice providers, and 67.8% have at least four broadband wireless providers. At the same time, wireless voice revenue per minute, for example, dropped from nearly $0.60 in 1993 to $0.05 revenue per minute.

For good measure, in July 2010, the U.S. Government Accountability Office found that the number of wireless subscribers increased from 3.5 million in 1989 to 285 million at the end of 2009. And as a percentage of the total U.S. population, the number of wireless subscribers reached 91 percent by December 2009, up from 38 percent in 2000. The GAO also reported that "the average price for wireless service in 2009 was approximately 50 percent of the price in 1999."

That's all about communications companies pushing ahead with investments that fund innovation and efficiencies. And it was accomplished as the industry experienced a consolidation of carriers mainly through mergers and acquisitions.

It is not unusual for a market to develop in this manner. Investments and innovations are tested in the marketplace. Efficiency gains improve service quality and lower prices for consumers. Various firms find these improved efficiencies through mergers and acquisitions, while the market itself remains dynamic and competitive so that a textbook monopoly scenario of higher prices and diminished service does not even lie within the realm of possibility.

This proposed merger between AT&T and T-Mobile holds real potential for further advancements in terms of investment, innovation, efficiencies and prices for individual and business customers. The ultimate test, of course, should come in the competitive marketplace, with consumers making the final decisions, as opposed to leaving it to political appointees in the government.


Raymond J. Keating serves as chief economist for the Small Business & Entrepreneurship Council

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