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to believe that DOJ decision-makers, as well as leaders at the Federal Communications Commission, still cling to an outdated view of competition when all the evidence demonstrates that innovation, lower prices, and vast choices are flourishing.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, TheHill.com 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.

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

DoJ's Action Against AT&T/T-Mobile Hurts Investment, Innovation, Quality Broadband Deployment

SBE Council issued the following statement in response to yesterday's U.S. Department of Justice decision to sue to stop the proposed merger between AT&T and T-Mobile.

SBE Council Chief Economist Raymond Keating said: "The Department of Justice's decision to sue to stop this merger is a glaring example of government deciding that it knows best how the wireless market should develop. Especially given the incredible dynamism, innovation and growth in the telecommunications arena, this is absurd. It's important to keep in mind what both the Federal Communications Commission and Government Accountability Office have reported about the wireless market, that is, that wireless access has expanded and prices have fallen dramatically over the past two decades. And that occurred amidst consolidation among wireless providers. In the end, the merits and efficacy of a merger between AT&T and T-Mobile should be left for consumers - including entrepreneurs, small businesses and their employees - to decide, not government political appointees."

SBE Council President & CEO Karen Kerrigan added: "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."

According to SBE Council, technology is changing rapidly, far too rapidly for DOJ 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.

This most recent action by the federal government sends yet another signal to American business that Washington remains hostile to businesses of all sizes.

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.

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

Broadband a Necessity for Small Business

Access to broadband has become a necessity for America's entrepreneurs and small business owners. That was the message I delivered to scores of Capitol Hill staffers at a Broadband for America briefing on March 24.

Former FCC Chairman Michael Powell, who currently serves as Broadband for America's Co-Chairman, was also on hand for the event. He delivered compelling remarks about the importance of broadband, and provided a primer of sorts regarding the evolution of the Internet and telecommunications technology. Regulations, however, continue to stay inappropriately rooted in their siloed and outdated past.

I noted the benefits of broadband for small firms, and how entrepreneurs have increasingly turned to broadband for business solutions. The harsh recession forced many entrepreneurs to make tough cost-cutting decisions. Small business owners searched for and indentified solutions that allowed them to survive the recession's immediate tumult. Many of these changes have helped businesses transform operations for long-term competitiveness. Solutions made possible through broadband have helped business owners enhance productivity and increase sales. Many entrepreneurs were forced to move outside of their "comfort zones" - modifying "old" practices, or discarding some altogether. They have embraced innovative marketing techniques that are driving new revenue streams. Broadband made this possible.

A new AT&T Small Business Technology Poll 2011 released mid-March shows just how dependent small business owners have become on broadband and wireless technologies. According to the survey, 96 percent of small businesses use some form of wireless technologies to operate.

Key findings of the survey demonstrate the profound impact that broadband technology is having on small firms:

• More than 80 percent of small businesses use smart phones to maintain business operations

• 40 percent of small businesses report that all employees use wireless devices or technologies to work away from the office (up 66 percent from 2010)

• 72 percent of small businesses use mobile apps (38 percent say that they could not survive without such apps)

• 41 percent of small businesses have created a Facebook page for their company (an increase of 52 percent from 2010)

• 79 percent use WiFi hotspots to conduct business-related activities

Given the rate of broadband adoption by small businesses (and the accelerated rate of adoption of the myriad tools made possible through broadband) it should come as no surprise that many small business owners say they would find it challenging to survive without wireless technology - 64 percent feel that way, according to survey (three years ago, 42 percent said it would be difficult).

Indeed, broadband is a necessity for America's small business owners. As more entrepreneurs and individuals utilize broadband as a management and empowerment tool - for their businesses and their personal lives - the need increases for networks to be more robust and reliable.

That is why policy makers and elected officials need to understand the importance of maintaining an environment that encourages private sector investment. That means government, at all levels, must strive to produce a business environment that reduces uncertainty. Enabling and incentivizing private sector investment will continue to spur innovation and job growth. Billions upon billions of investment dollars will be necessary to make infrastructure upgrades all geared toward increasing network capacity and reliability. A steady stream of investment also nurtures and enables the innovation that is rapidly occurring within the broadband ecosystem.

A March 4, 2011 letter sent to Office of Information and Regulatory Affairs (OIRA) Administrator Cass Sunstein from Broadband for America leaders and members, including Honorary Co-Chairman Michael Powell (former FCC Chairman) and Harold Ford (former U.S. House Member), urged the FCC to reorient its regulatory approach in order to "clear the runway for continued investment and innovation in broadband services." One key principle outlined in the letter was the need for the FCC to "reverse the presumption in favor of regulation and rely more heavily on the market."

Indeed, it is clear that what the market and private sector investment have produced over the past ten to fifteen years is nothing less than remarkable. Particularly now, the government needs to be encouraging more private sector innovation and investment, not less. As we can see from the results of the AT&T survey, this is especially critical for America's small business sector.

Karen Kerrigan, President & CEO

AT&T's Acquisition of T-Mobile USA an Important and Positive Development for Consumers and U.S. Economy

Connecting all Americans to reliable, high-quality broadband remains an important national initiative – particularly for U.S. entrepreneurship and small business owners. That is why SBE Council continues to support policies that encourage investment in our nation’s broadband infrastructure and the expansion of a robust network.

As I have noted in many policy pieces and communications with President Obama and the Federal Communications Commission (FCC), private sector investment is the surest way to bring the power of broadband to every American. That investment is critical to U.S. competitiveness, where businesses and entrepreneurs are utilizing and tapping into the broadband network as it is serving as a critical platform for innovation and growth opportunities. So, efforts by our nation’s telecommunications sector that stand to improve the network and connect more Americans to broadband should be applauded by consumers, government officials and policy leaders. This weekend’s announcement that AT&T will acquire T-Mobile USA is one such development.

The acquisition means that network quality will improve for existing customers of both companies as the integration of their assets will strengthen their delivery of service. Significantly, according to a media release, “AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns.”

Of course, this means more Americans and small business owners will have access to high-quality broadband, which is a top priority for President Obama and the FCC as outlined in their National Broadband Plan. According to AT&T, the acquisition will bring advanced LTE capabilities to more than 294 million people. This is fantastic news, and of course being done without government money.

In his State of the Union speech, and in many public appearances that have followed, President Obama said he wants to make America "the best place on earth" for business. If he and his Administration are serious about this stand, they will cheer this critically important acquisition and allow it to move quickly to a close.

Karen Kerrigan, President & CEO