Open minded on the AT&T/T-Mobile merger

by on April 19, 2011 · 8 comments

Is it “insane” for free market oriented thinkers to support the AT&T/T-Mobile merger?  Although AT&T says there are five choices of wireless providers to choose from in 18 of 20 major markets, Milton Mueller argues that 93 percent of wireless subscribers prefer a seamless, nationwide provider.  If the merger is approved, there would only be three such providers.

A market dominated by three major providers is neither competitive nor noncompetitive as a definitional matter.  Factual analysis is necessary to determine competitiveness.

And it may be premature to conclude that there is no competitive significance either to the fact there are over a hundred providers currently delivering nationwide service on the basis of voluntary roaming agreements that are common in the industry, or to assume that the possibility the FCC will double the amount of spectrum available for wireless services will not impact the structure of the industry.

The trouble with antitrust generally is the possibility that government will choose to protect weak or inefficient competitors, thus preventing meaningful competition that attracts private investment which leads to innovation, better services and lower prices.  Antitrust is supposed to protect consumers, not politically influential producers.  Although this sounds simple in theory, it can get confusing in practice.  As free market oriented thinkers, we do not want government picking winners and losers.

As Larry Downes correctly points out, if concentration leads to higher prices there will be more profits for competitors and more competition.  Schumpeter teaches that short-run monopolies come and go, while long-run monopolies are exceedingly rare – unless “buttressed by public authority.”

Mueller makes a couple other important points that reflect the thinking of a lot of people.  One is AT&T’s customer satisfaction ratings, prices and network performance.   This merger would provide extra spectrum the carrier needs to address each of these issues, however.

Although there are other ways to increase network capacity, they won’t be enough.  The National Broadband Plan notes that data traffic on AT&T’s mobile network increased 5,000% between 2006 and 2009.  According to the chairman of the FCC, “We need to tackle the looming spectrum crunch by dramatically increasing the new spectrum available for mobile broadband, and the efficiency of its use.”  That’s why the broadband plan is proposing to double the amount of spectrum available for wireless, a process that could take several years.  Historically, it has taken 6-13 years to reallocate spectrum.

Mueller also points out that AT&T cited network capacity issues when it opposed microwave-based competition in long-distance (in the 1960s).  AT&T has been criticized for the advocacy it used in those days.  The real problem the company faced then was being saddled with a pricing structure that was incompatible with competition, but policymakers were not about to change that.  Regulation mandated that AT&T charge high prices for long-distance to subsidize “affordable” (i.e., at-or-below cost) local service.  That set up an attractive cream-skimming opportunity for potential competitors such as MCI.  The new entrant’s business plan was to compete for the fat long-distance profits and not get stuck with money-losing local service obligations.  That was a real problem.

Finally, Mueller suggests limited government intervention as a preventative for excessive government intervention.

If you support a competitive industry where one can reasonably expect the public and legislators to rely on market forces as the primary industry regulator, this merger has to be stopped. On the other hand, if you welcome the growing pressures for regulating carriers and making them the policemen and chokepoints for network control, a bigger AT&T is just what the doctor ordered.

A similar argument was made in the early 1980s with regard to local and long-distance service.  Regulate local so long-distance can be free.  This is so defeatist.  As free market thinkers, we need to stand for principle.  Unwarranted government intervention in the free market should be opposed.

If the FTC, Department of Justice and/or FCC do find that such a merger would substantially lessen competition, they could also impose specific conditions to ameliorate the impact – making it unnecessary to block a merger outright.  Minimum intervention ought to be the first choice for free market thinkers.

  • Milton Mueller

    Hance:
    I understand the potential misuses of antitrust. I had no concerns about the Comcast/NBC acquisition, for example. This is not one of those cases. The dangers of monopoly are not speculative and distant, nor is it a case of protecting weak or inefficient competitors. Do you deny even the possibility that prices will go up and choices go down if this merger happens? On what basis are you so confident? Please describe a plausible scenario in which competition and consumer benefit increase as the field is whittled down to two major players and one weak player.

    You dismiss the concern about increasing regulation with some throw-away line about local and long distance. This overlooks my broader political concern about an increasingly concentrated network infrastructure. You seem blind to the obvious trend toward using the ISP as a control point for all kinds of Internet behavior ranging from copyright to govt surveillance, and how the existence of two or three dominant players makes this technically and politically easier.

    But I think your rejoinder fails even on its own terms. In fact, during the transition period we pretty much DID need to “regulate” local interconnection to make early long distance competition possible. Did you also oppose the original AT&T breakup? I strongly favored it – had some good arguments with some Cato people in the 1980s, who couldn’t bring themselves to realize that govt action was needed to unwind the monopoly the government created. We would not have a competitive, liberal telecommunications market at all had that not happened, and the record of innovation and growth in the U.S., where we flat-out busted up the monopoly, far exceeds the record in places where they tried to keep their hands off the monopoly such as New Zealand.

  • Hance Haney

    Milton:

    I would never deny the possibility that prices could go up or choices go down. However, I am confident that if a firm abuses a dominant position it will invite competition. John D. Rockefeller was always careful to keep prices low to discourage potential competitors.

    Your concern about the use of ISPs as control points for surveillance and law enforcement is one with which I completely agree. The Electronic Communications Privacy Act must be updated. ISPs cannot assume responsibility for copyright enforcement. But the problem is not just limited to ISPs. For example, there is a report that Michigan police are searching the contents of mobile phones during routine traffic stops. They reportedly have a device which permits “[c]omplete extraction of existing, hidden, and deleted phone data, including call history, text messages, contacts, images, and geotags” in approximately a minute and a half.

    http://www.thenewspaper.com/news/34/3458.asp

    I also think we’re in agreement on the breakup. I object when people credit the breakup for competition in telecommunications. New technologies including microwave and fiber optics permitted competition and also made it inevitable. The breakup merely eliminated a legal monopoly, as you say. Thus, Ma Bell is a perfect illustration of what Schumpeter talked about, i.e., the rare long-run monopoly that persisted because it was buttressed by public authority. Therefore, I think the breakup corrected a regulatory failure, not a market failure.

    Hance

  • Hance Haney

    That mangled URL should read: http://www.thenewspaper.com/news/34/3458.asp

  • Hance Haney

    That mangled URL should read: http://www.thenewspaper.com/news/34/3458.asp

  • Pingback: Information Control, Market Concentration, and the AT&T/T-Mobile Deal

  • Jerry Vinter

    Flawed argument.

    Three may be an acceptable number for the number of major competitors but it obscures the following facts:

    1. The cellphone marketplace is not really a free market. The large early termination fees retard consumer mobility.
    2. AT&T + T-Mobile would be the only major GSM carrier. This means that for the increasing numbers of Americans who travel and conduct business overseas, this is a monopoly of 1. Nothing free market choice about that.
  • Nancy Jones

    @86b30aebd9d4c64651a5c5779a6f1753:disqus The fee may be an impediment to your WANTING to move to another carrier, but it does not make it IMPOSSIBLE; and you CAN always wait till the end of your contract. Or you could select a carrier that doesn’t require a contract. That nullifies your argument against it being a free market. YOu can also choose NOT to use a GSM carrier, even though that would mean NOT having access overseas–that also does not nullify the free market tag. Any other carrier can enter that market if they choose. The fact that they haven’t doesn’t mean there is no free market. If you are the only manufacturer of XYZ widget, it is still a free market unless the government under which you reside or operate suppresses competition somehow. If nobody else CHOOSES to enter the market, it is still a free market. Even if everyone in teh world NEEDS that widget, and you are the only provider, but the reason nobody else offers it is because nobody WANTS to or IS ABLE to offer it, the market is free.

  • Nancy Jones

    ” 93 percent of wireless subscribers prefer a seamless, nationwide provider”

    This statement does not indicate a monopoly. It indicates that people are exercising a PREFERENCE, indicating that there is another option.

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