Tech at Night: All AT&T/T-Mobile, All the Time

On September 13, 2011, in General, by Neil Stevens
Tech at Night

Competition, growth, and innovation are all important for the American wireless Internet market. We need more, better, and cheaper service if we’re going to move in large numbers to wireless Internet, as some are predicting. This means competition and growth in the 4G sector is vital to our future economic health.

And that, in a nutshell, is why I think it’s essential that the government stay out of the way and allow the AT&T/T-Mobile deal to proceed. Obviously now it’s too late to prevent a lawsuit, since it’s already happened, but dropping the suit would be better than proceeding on the current anti-competitive path.

That’s the one fact that more and more evidence is bringing to light: stopping the merger is the anti-competitive act, not the merger itself. Both Sprint Nextel and the Department of Justice are threatening competition, hindering us from moving beyond the 4G duopoly of Verizon and Sprint Nextel.

The latest evidence that the merger is needed to bolster, not reduce, competition comes from a study by Chitika Insights. I think Chitika overestimates the market share AT&T will have, as it assumes the entire 13% of the market owned by T-Mobile will remain and not switch to Sprint Nextel or Verizon.

Even so, the main point I wish to make from the study is that Chitika expects Sprint to be at risk of failure. Chitika suggests it would happen because the larger AT&T would be a have enough market power to choose new prices. Now, think about what that means. If AT&T sets higher prices, what does that mean? The rest of the market will be able to follow, that’s what it means. Sprint would be able to join AT&T at the higher price level, and make more money.

That’s not what Chitika is predicting though. Chitika expects Sprint to get squeezed out. The only way that happens, though, is if Sprint is forced to lower prices, reducing profit, and perhaps even being forced to reduce prices below its own costs. That’s a benefit for the public. That’s competition. Competition squeezes out competitors. Rent-obtaining oligopolies get fat with padded profits.

Steven Titch raises a more fundamental question about the limits of government policy: Can any T-Mobile buyer pass an antitrust test?, and goes on to expose the problem in the hypothetical that AT&T is singled out for rejection, but other, later buyer is allowed:

I’m not saying this is the DoJ’s desired aim, but the question hangs there: Given T-Mobile’s precarious state–if the government deems AT&T is an unacceptable buyer–who, then, is acceptable? When most other buyers also raise similarly provisional antitrust concerns, rejecting one in favor of another will appear arbitrary and smack of central planning.

Although it may not be popular to say so, shareowners have rights, including the right to sell their stock at the best offer. We’ve given the government the power to overrule these rights if they deem the sale is in the public interest. That’s why the DoJ has to mind the consequences of a blocked sale, for if AT&T-T-Mobile does not serve the public interest, neither, by its own reasoning, do any of the other scenarios outlined above. If it rejects one, it needs to reject the others. Anything else turns its exercise into one of industrial policy rather than protection of the public.

Of course, this is Barack Obama and Eric Holder. Of course they’re looking to exercise industrial policy. GM, “Green Jobs,” the ARRA, you name it, they love it.

The whole game’s rigged. That’s why Holder and Obama are trying to take this way from the FCC to begin with, and why at least one Democrat, John Yarmuth of Kentucky, is pressuring the FCC to remain silent just in case it disagrees with the DoJ’s claims.

Comments are closed.

Nima Jooyandeh facts.