The Department of Justice has come out with guns blazing in an effort to stop the $39 billion AT&T/T-Mobile USA merger. But is it really in the interest of either the antitrust bureaucracy—or the consumers they are supposed to represent—to put the kibosh on this one?
There’s a legitimate dispute here. On one side are folks (like us) who believe that the merger’s likely benefits—faster introduction of new technology to meet the exploding demand for mobile broadband—far exceed the risks associated with greater market concentration. On the other side are those who believe that moving from four big national carriers to three would mean the end of serious price competition in the wireless industry.
Before engaging in a full-blown legal battle, we think it would serve the interests of the Justice Department to see if its concerns could be met without a trial. For one thing, there’s a real possibility that the trustbusters could lose —the judge in the case has shown in the past that she is no rubber stamp for the government. For another, a trial means that both company’s plans will be put on hold, a prospect that could prove costly to consumers, workers and the telecoms.
T-Mobile USA is running just to stay in place. It lost almost a half-million contract customers in the first quarter of 2011. And though it managed to replace most of them, the bulk of the newcomers were less lucrative subscribers recruited though resellers. Moreover, T-Mobile’s corporate parent, Deutsche Telekom, isn’t about to bankroll a rescue. The German communications giant has made it plain that it won’t invest more to sustain its American presence. Indeed, by the time a trial is over, a much-weakened T-Mobile may simply be unviable as a standalone entity.
Does AT&T have anything to give to satisfy the government? AT&T’s CEO Randall Stephenson is on record that the company is prepared to divest some assets, reducing its share of the business in some markets. That ought to open the door for a deal. The top 25 local wireless markets, served by all the major carriers along with smaller wireless companies eager to buy market share with low prices, are already so competitive that the merger would have little material effect. But divestitures in smaller markets ought to go a long way toward assuaging genuine concerns about market concentration.
We think serious settlement discussions are the way to go. Duking it out in court could lead to a winner-take-all outcome in which the only certain loser is the public.
Bob and Peter write: “T-Mobile USA is running just to stay in place. It lost almost a half-million contract customers in the first quarter of 2011. And though it managed to replace most of them, the bulk of the newcomers were less lucrative subscribers recruited though resellers.” But were these problems unique to T-Mobile? Who else was losing, and who was gaining, customers, at those times and how, too, might those customers be characterized?
They add: “Moreover, T-Mobile’s corporate parent, Deutsche Telekom, isn’t about to bankroll a rescue. The German communications giant has made it plain that it won’t invest more to sustain its American presence. Indeed, by the time a trial is over, a much-weakened T-Mobile may simply be unviable as a standalone entity.” Deutsche Telekom was evidently happy with the AT&T offer, which promised a higher return than stand-alone investment in T-Mobile USA, especially in a sour economy. Its investment plans at the time it “made [them] plain” may have reflected its U.S. affiliate’s merger/takeover prospects, the weak U.S. economy, or other factors. The proposed merger itself, along with the uncertainty occasioned by its challengers, are certainly disincentives to its investment in T-Mobile at this point.
A “faster introduction of new technology” is promised, but is that a “likely benefit” to U.S. wireless customers as a whole, short-term and long-? While I tend to be skeptical of merger challenges, particularly by competitors, I don’t know enough about the facts at play here to reach a conclusion on this particular merger.
As always, it sounds too good to be true. AT&T adopts T-Mobile and we the customer get the treats. I have trust issues with corporate American. Maybe it’s their off-shore accounts. Eighty percent of the Fortune 500 have them according to the Government Accounting Office. Corporations are not always loyal to their employees. I hate hearing that employees with fifteen years are told to hit the highway. True, such behavior on the part of corporate America has created net cash of over one-trillion dollars and it would be extra nice if said companies could share that with their stockholders, better service with their customers and trainig programs for workers who really want to work. Big mergers does, but not always, create barriers to entry which equals less competition, dead weight loss and unintended consequences like “too big to fail” which equals moral hazard. Where have I heard that term, moral hazard? One must admitt, like corporate American,I have self-interests at heart. I enjoy my eight year mariage to T-Mobel. Perhaps if there were more dates at the dance, I would tell T-mobile and AT&T to hit the highway but there is not. Lack of competition perhaps or maybe it’s just me.