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Thursday, September 08, 2011

Reactions to DoJ Attack on AT&T-T-Mobile Merger

The Obama Department of Justice has generated a great deal of controversy by challenging the proposed merger between AT&T and T-Mobile.

Deputy Attorney General James M. Cole declared that this merger would mean "higher prices, fewer choices and lower quality products for mobile wireless services." But does this have any basis in reality?

We at the Small Business & Entrepreneurship Council (SBE Council) responded with appropriate outrage fit for when political appointees decide they know better than the marketplace, in particular, better than consumers.

SBE Council President & CEO Karen Kerrigan said, "It is unfathomable that the government has decided to block a merger that would bring high speed wireless access to many areas of the country that need such a tool to compete and survive in the challenging economy. It's hard to believe that DOJ decision-makers, as well as leaders at the Federal Communications Commission, still cling to an outdated view of competition when all the evidence demonstrates that innovation, lower prices, and vast choices are flourishing. This backward thinking by DOJ, and the other private-sector micromanagers in this Administration, is killing investment, jobs and opportunities for entrepreneurs."

Others weighing in are worth highlighting.

George L. Priest, who teaches economics and law at the Yale Law School, writing in the September 6 Wall Street Journal, made two fundamental and important points:

"First, there's lots of competition in the wireless market. Prices have been declining progressively over time. There are many local market competitors with discount and pre-paid plans. There is clearly an economic reason that T-Mobile's parent, Deutsche Telekom, has no further interest in the American wireless market. If there were great profits to be made because of lack of competition, Deutsche Telekom wouldn't be selling T-Mobile. Second, the best evidence of the prospective effect of a proposed acquisition is the response of competitors that will face the combined firms. The chief competitor, Sprint, the third largest wireless company, has been lobbying to stop the merger from its first announcement. If the acquisition would lead to increased prices and lower quality products as the Justice Department has claimed, Sprint would be better off after the acquisition. Sprint would be able to add subscribers, not lose them, because of AT&T's higher prices and lower quality."

Hmmm. Interesting and hard to argue with, especially that second point.

On September 1, the editorial page at the Journal laid out some basics quite nicely on this dynamic market:

"An AT&T and T-Mobile tie-up would create the country's largest wireless company but that wouldn't happen in a vacuum. The bigger AT&T (130 million subscribers) would have to compete with Sprint (52 million) and Verizon (106 million), as well as cable and satellite companies itching to get into the game. Digital satellite TV company Dish Network filed a waiver with the FCC last week to build a wireless 4G network with its radio spectrum. Smaller players like MetroPCS Communications, Leap Wireless International and others are mounting challenges in concentrated urban and regional markets and growing quickly... A July paper by economists Gerald Faulhaber, Robert Hahn and Hal Singer analyzed U.S. wireless markets and found them to be highly competitive. Unlike Justice, however, the authors distinguished between market-share analysis that infers future anticompetitive behavior and modern techniques of looking at direct evidence of price movements and consumer options."

There was reaction on the presidential campaign trail as well. On September 1, for example, reported:

"Republican Rick Perry's presidential campaign reiterated the Texas governor's support for AT&T's acquisition of T-Mobile on Thursday, one day after the Justice Department sued to block the deal. ‘AT&T is a highly-regarded Texas-based company, creating thousands of good American jobs and providing critical communications services worldwide,' Mark Miner, a spokesman for Perry, said in an email. ‘Governor Perry believes the combination of the two telecom companies will be good for consumers, good for technology innovation and good for America job creation.'"

In a letter about merger to the FCC in May, Perry wrote: "The future rests in wireless broadband, and the federal government's swift approval of the merger between AT&T and T-Mobile would send a strong signal to employers, consumers and states that our federal government is serious about meeting the communication and technology needs of Texans and all Americans."

While the ultimate success of a merger between AT&T and T-Mobile would be decided in the market by consumers, real potential exists to expect that the resulting combined entity will be better able to achieve economies of scale, to invest and innovate in broadband wireless, and to enhance quality and lower costs for consumers in this very competitive and dynamic marketplace.

From a small business perspective, entrepreneurs and their workers obviously would benefit from enhanced quality and lower prices as consumers of wireless services. But benefits also would come from working in and serving other businesses and workers in the telecommunications industry, as broadband investment expands.

It takes antiquated and misguided thinking to believe that a merger between AT&T and T-Mobile would truly result in reduced service, less innovation and higher prices. Unfortunately, government antitrust regulators specialize in such archaic views.


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

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