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to believe that DOJ decision-makers, as well as leaders at the Federal Communications Commission, still cling to an outdated view of competition when all the evidence demonstrates that innovation, lower prices, and vast choices are flourishing.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

_______________

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

States Giving Thumbs Up on AT&T and T-Mobile Merger

Federal regulators, along with various members of Congress, are taking a look at the proposed purchase of T-Mobile by AT&T. Interestingly, state level officials are weighing in as well. And so far, those declarations are overwhelmingly in favor of this deal.

Three state regulatory bodies have given approval to the agreement.

In early July, the Arizona Corporation Commission became the first body to approve the merger. As reported in TheHill.com, the Arizona commission, "which regulates the state's utilities, concluded the transaction wouldn't adversely affect's the firms' state subsidiaries or their ability ‘to provide safe, reasonable, and adequate service,'" with the commission's staff indicating "the proposed benefits are ‘important to the continued and future quality of telecommunications services to Arizona consumers.'"

Following Arizona in late July came Louisiana. The Louisiana Public Service Commission, as noted by CNet.com, said that "the proposed acquisition has received overriding support locally, as is evidence by the diverse number of groups and officials who are in support." In addition, as noted in TheHill.com, "the staff report argues the deal will result in at least $8 billion in investments, some of which will be in Louisiana, along with increased rural broadband coverage and new jobs in the state, thanks to AT&T's pledge to deploy next-generation wireless broadband nationwide."

And then came approval on July 29 by West Virginia's Public Service Commission, ruling that competition would not be hurt in the state.

Beyond state regulatory bodies, others have weighed in as well.

Governors in 26 states have written letters in support of the proposed merger to the FCC. For good measure, 11 state attorneys general signed a letter to the FCC in favor of the proposed deal.

But why does any of this matter? After all, won't the Department of Justice and the FCC have the final say from a regulatory approval standpoint?

These actions by and comments from leading state officials matter for several reasons. For example, as the Associated Press reported, "state regulators can impose their own conditions on the deal - such as marketing restrictions and employment promises."

But perhaps more importantly, federal regulators consider what's being said in the states. If the message from state regulators and elected officials overwhelmingly is that this is positive for consumers, businesses and the economy in their respective states, then that is a significant declaration "on the ground", so to speak, about the real benefits of the merger.

Louisiana Governor Bobby Jindal summed up the impact this merger on his state's economy in a May letter to the FCC. Jindal, in part, wrote:

"The availability of mobile broadband is a critical component to drawing in new businesses and growing the ones already in our state. With this merger, Louisiana communities and businesses, especially in our rural areas, will be able to participate and compete even more in the global economy. More than half of Louisiana's parishes are considered rural, and the expansion of technology here will help spur both innovation and economic development in areas that need it the most. Job creation has been a major focus of my administration and I support any efforts that aid our state in moving forward. Adding mobile broadband capacity will help create more opportunities for Louisianians-Louisianians who will not have to leave our state to secure a great education or find a rewarding career."

These remarks could and do apply to other states. Federal regulators would be wise to take heed and not interfere with the dynamism, innovation and investment taking place in the private sector that are benefiting entrepreneurs, small businesses, workers, and consumers across the nation.

_______________

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

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