AT&T proposed to buy T-Mobile from the latter’s parent company, Deutsche Telekom. The FCC and Department of Justice objected. So AT&T has withdrawn its application, or has at least tried to.
From all the multiple-media advertising we gain some appreciation for the dollars gobbled up by Verizon, Sprint, AT&T, and, to a lesser extent, T-Mobile. Indeed, the commercials are ubiquitous and inescapable.
AT&T wanted T-Mobile’s bandwidth and, if possible, the whole enchilada. Why? The New York Times, in a very detailed article, writes:
AT&T has argued that acquiring T-Mobile’s spectrum would enable it to upgrade its network and improve its notoriously spotty service in markets like Manhattan.
The article also quotes academics who suggest that the proposed acquisition was a clear violation of antitrust laws. The Times:
“It’s only a slight overstatement to say that if they weren’t going to block this one, the Justice Department might as well just throw the antitrust guidelines out the window,” said Herbert Hovenkamp, professor of law at the University of Iowa, who is considered by many to be the dean of American antitrust law. “This merger clearly seems to violate them.”
The Justice Department relies on the Herfindahl-Hirschman Index, according to the Times. It’s a formula that attempts to correlate market concentration rates with consumer prices. In fine, the more companies in a market, the lower the prices.
What are the current market shares of the telecoms?
We can understand that Sprint doesn’t like this one bit, nor, argues Justice and the FCC, should consumers, who have seen their mobile bills escalate.
On the other hand, it’s clear that Deutsche Telekom wants to unload it American subsidiary, mired in fourth place, with less than half the market share of third-place Sprint. The German corporation is reluctant to invest the requisite dollars in infrastructure improvements to remain competitive.
If the merger fails, what happens to T-Mobile? Suppose DT simply cuts its losses and sells off T-Mobile’s assets. Would that be in the public interest? What about the employees? Matthew Yglasias: “One institution certain to be unhappy with almost any viable alternative to the merger with AT&T is the Communications Workers of America who would very much like to add T-Mobile’s staff to AT&T’s heavily unionized bargaining unit.”
Interestingly enough, AT&T apparently inserted its own poison pill in the proposal.
AT&T agreed to give T-Mobile a huge breakup fee of $3 billion in cash plus wireless spectrum and a roaming agreement valued at another $3 billion should the deal fall through on antitrust or other grounds.
Perhaps AT&T got a bit cocky, believing that it would face little opposition, especially if the company’s propagandists (not necessarily a pejorative term) chanted that the merger would be good for the economy and create new jobs. (I’m not in a position to accept or reject such an assertion, although Justice doesn’t buy it.) After all, $3 billion is a lot of money, almost ten percent of AT&T’s offer to DK.
Whatever eventually happens, we gain some sense of how high-stakes all this has become. There’s lots of gold in them thar’ spectrums.
US policy has a lot to do with this, when it departed from its European counterparts to reject common carrier rules. That’s a big reason telecommunications is so much more expensive here than in, say, France.
Without the common carrier protocol, the separate telecoms must build their own infrastructure and acquire their own spectra to transmit point-to-point signals. A US electric utility, in contrast, is subject to common-carrier guidelines. If a third-party resource developer wants his generated output transmitted to a customer several utilities removed, each utility must allow the juice to flow through its wires—subject to a rate equal to the utilities’ costs to distribute power to its own customers.
How much less expensive, it seems to me, if US telecommunications rules operated like electric utilities. Imagine the reverse. Then there could be multiple utilities and multiple, competing physical infrastructures running parallel throughout a service territory.
In the beginning, that’s precisely how things worked in the electric utility industry. At some point, however, wiser people prevailed, declaring distribution utilities natural monopolies. Lawmakers and regulators should have done the same thing with telecommunications companies, in my opinion. At the very least they should have insisted on common carrier protocols. (How quaint now the expression “information superhighway.”)
That’s not likely to happen, especially in the current political climate. That’s too bad for consumers and too bad for workers. The existing scheme is lucrative for large corporations, however. But that’s the American way.
