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Wednesday, August 31, 2011

Another Job-Stopper: Obama DOJ Opposes AT&T-T-Mobile Merger

The current Administration has shown few indications that it grasps how markets and business work. And despite overwhelming support from unions, entrepreneurs, politicians from all levels of government and the technology sector, the Obama Justice Department has decided to sue to stop the proposed merger between AT&T and T-Mobile.

According to Deputy Attorney General James M. Cole: “The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services.”

Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division, added, “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”

How can anyone have that point of view given the vast dynamism and innovation in the technology and telecommunications sector?

Apparently, it’s not just the Obama Justice Department challenging this merger. Reuters reported: “The deal also would need the approval of the Federal Communications Commission, which regulates wireless telecommunications. On Wednesday, FCC Chairman Julius Genachowski said he is concerned about the deal’s impact on competition.”

In response, Wayne Watts, AT&T Senior Executive Vice President and General Counsel, noted that his firm intends to “to vigorously contest this matter in court.” Watts went on to highlight several benefits from the merger, including helping to “solve our nation's spectrum exhaust situation and improve wireless service for millions,” allowing “AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97% of the population,” and “billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most.”

The Communications Workers of America (CWA) also challenged the Obama Justice Department. In a statement, the CWA declared: “In today's sinking economy, where millions of Americans are looking for work, the DOJ has filed suit to block a merger that will create as many as 96,000 quality jobs. In the U.S., where too many Americans, especially in rural areas, don't have access to the tools of Internet technology, the DOJ is looking to block a plan to build out high speed wireless access to 97 percent of the country should be opposed… Instead of acting to block this merger, our government should be looking to support companies that create, keep and return good jobs to the United States.”

The CWA is right on the mark.

In the end, the Department of Justice seems to be arguing that because T-Mobile has innovated in various areas, they cannot be allowed to merge with AT&T as innovation would then suffer. But do such assumptions have any basis in economic reality?

It’s again worth pointing out how the wireless market has developed in recent years. For example, the FCC noted in its 15th Annual Wireless Competition Report that wireless access has expanded and prices have fallen dramatically over the past 17 years. In addition, 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; the percentage of wireless subscribers relative to the total U.S. population grew from 38% in 2000 to 91% in 2009, and “the average price for wireless service in 2009 was approximately 50 percent of the price in 1999.” And all of this investment and innovation occurred amidst enormous consolidation among wireless providers.

No sound economic reasons exist to believe that the merger AT&T and T-Mobile would somehow limit innovation and choices, or raise costs for consumers. The telecommunications market is far too dynamic to allow for such developments. However, it is quite reasonable to believe that new efficiencies, capital accumulation, and synergies could create gains in terms of investment, innovation, consumer benefits, and overall economic growth.

Technology is changing rapidly, far too rapidly for Department of Justice lawyers to decide which business models make sense and which do not in the marketplace. Advancements are creating new opportunities for entrepreneurs and business of all types and sizes as both providers and consumers of telecommunications services.

In the end, consumers should have the ultimate say, with this merger potentially resulting in improved service, lower prices, and services and products given the wider reach of broadband wireless.


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

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