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Thursday, December 01, 2011

FCC Steps Out-of-Bounds...Again

Do the FCC and DoJ Know Better?

What’s up with President Obama’s Department of Justice and Federal Communications Commission? Why are they trying to deny consumers, businesses and the economy the potential benefits from a merger between AT&T and T-Mobile?

The quick answer is: political appointees think they know better than consumers. But there’s even more at work here.

In a free, competitive marketplace, businesses work to come up with the best business models, and goods and services at the best prices, in order to better serve customers and thereby earn profits. Consumers – including, of course, small businesses in the case of telecommunications services – decide what works and what does not in the end.

From the perspective of entrepreneurs, small businesses and their employees, since the proposed $39 billion purchase of T-Mobile USA by AT&T offers potential gains in efficiencies and costs for AT&T, that in turn would likely result in improved service, expanded offerings, and lower prices. In addition, small firms would have opportunities to play roles in expanding broadband investment and innovation, as well as from the resulting services and products given the expanded reach of broadband wireless among consumers.

Overall, if the merger works, the potential efficiencies and investment would be a plus for economic growth and job creation.

Meanwhile, concerns over the size of AT&T’s market share – a traditional worry in antitrust circles – should be alleviated given the dynamic nature and vastly expanded choices available to consumers in the telecommunications universe. Never before have individuals, families and businesses had so many options in terms of their telecommunications services, nor have such services developed so rapidly before.

Yet, for those who favor government, and view private markets and businesses with skepticism, or even hostility, letting go of old, bankrupt notions of how markets work is not easy. As a result, we’ve seen the Obama DoJ and the Obama FCC trying to impose bureaucratic thinking on the fast-moving, dynamic marketplace of the twenty-first century.

In August, the DoJ announced its decision to sue to block the deal between AT&T and T-Mobile. The DoJ assesses such deals on antitrust grounds, and believes that this would substantially reduce competition, thereby limiting choices and raising prices for consumers. That’s a bewildering conclusion if one understands the gains in service and reduction in prices experienced over the past two decades, and the innovative nature of these markets.

Meanwhile, the FCC also assesses the merger, and could oppose it if the commission deems it to be against the “public interest.” That, of course, is very vague.

But even worse, the FCC’s actions in this case have gone far beyond precedent, pointing to an aggressive, biased hostility, as opposed to at least some attempt at a more objective analysis.

For example, in late November, the FCC announced that it would seek a lengthy, unusual trial-like hearing on the merger. Such an inquiry is extremely rare.

Subsequently, AT&T announced it decisions to withdraw its FCC application pending the outcome of its court case with the DoJ. In response, the FCC surprisingly tried to assert that AT&T could only do so with FCC permission.

The FCC then came around to following its own rules and dismissing the withdrawn merger application without prejudice. However, it also decided to publicly release a draft staff report attacking the merger. This analysis was not voted on or approved by the commissioners, and it has no force in terms of the law. And as The Wall Street Journal reported: “Such documents typically don't become public until the FCC's board approves them.”

For good measure, the assertions served up in the report – such as that the largest U.S. markets would be left without competition, AT&T and its competitors would be able to hike prices without concern, and jobs necessarily would be lost – point to this being a political report, as opposed to a serious economic assessment.

The President and the FCC say they want to see mobile broadband deployed throughout the nation. Mr. Obama certainly needs the jobs that come with broadband investment for his re-election effort. Yet, the administration works to stop a merger that would help to achieve these goals.

Such anti-business, pro-regulation thinking and action is not unique in this administration. To the contrary, as exhibited in other areas like health care and energy, this is the default position of the Obama administration. The assumption is that politicians and their appointees – including at the DoJ and the FCC – supposedly know better than and can be trusted over investors, businesses and consumers in the private marketplace. The results of such an ideological bent, predictably but unfortunately, include diminished entrepreneurship, investment, growth and jobs.

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

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