FCC Strikes Out on AT&T + T-Mobile Opportunity

by on December 2, 2011 · 11 comments

AT&T and T-Mobile withdrew their merger application from the Federal Communications Commission Nov. 29 after it became clear that rigid ideologues at the FCC with no idea how to promote economic growth were determined to create as much trouble as possible.

The companies will continue to battle the U.S. Department of Justice on behalf of their deal.  They can contend with the FCC later, perhaps after the next election.  The conflict with DOJ will take place in a court of law, where usually there is scrupulous regard for facts, law and procedure.  By comparison, the FCC is a playground for politicians, bureaucrats and lobbyists that tends to do whatever it wants.

In an unusual move, the agency released a preliminary analysis by the staff that is critical of the merger.  Although the analysis has no legal significance whatsoever, publishing it is one way the zealots hope to influence the course of events given that they may no longer be in a position to judge the merger, eventually, as a result of the 2012 election.

This is not about promoting good government; this is about ideological preferences and a determination to obtain results by hook or crook.The staff analysis makes it painfully clear that the people in charge have learned very little from the failure of government to reboot the nation’s economy.  For starters, the analysis notes points out that “there will be fewer total direct jobs across the business,” notwithstanding various commitments the companies have made to protect many existing jobs and add many new ones.   The staff should have checked with the chairman of President Obama’s jobs council, for one.  CEO Jeff Immelt drives growth at GE through productivity and innovation, not by subsidizing inefficiency (see, e.g., this).

Immelt realizes that when government tries to preserve wasteful methods, firms become uncompetitive and lose market share.  That’s a recipe for unemployment.  The FCC staff analysis has got it completely backwards.  When politicians set out to “create” jobs, it is often at the expense of productivity.  We don’t need that kind of “help” from Washington.  Russell Roberts recounts in a recent column a story that bears repeating here.

The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren’t there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman’s response: “Then why not use spoons instead of shovels?”

FCC Chairman Julius Genachowski got it essentially correct when he remarked in a recent speech that, “Our country faces tremendous economic challenges.  Millions of Americans are struggling.  And new technologies and a hyper-connected, flat world mean unprecedented competition for American businesses and workers.”  Sadly, he does not realize that a merger between AT&T and T-Mobile provides a vehicle for that.

The combined company would have the “necessary scale, scope, resources and spectrum” to deploy fourth generation wireless services to more than 97% percent of Americans (instead of 80%), according to a filing they made in April.  That would make our nation more productive and improve our competitiveness, which is we want.  An analysis by Ethan Pollack at the Economic Policy Institute predicts that every $1 billion invested in wireless infrastructure will create the equivalent of approximately 12,000 jobs held for one year throughout the economy, and that if the combined company’s net investment were to increase by $8 billion, the total impact would be between 55,000 and 96,000 job-years.  The FCC staff thinks this is an irrelevant consideration, because it might happen anyway.

Several commenters respond that even absent the proposed transaction, AT&T would likely upgrade its full footprint to LTE in response to competition from Verizon Wireless and other mobile and other mobile wireless providers * * * * Nothing in this record suggests that AT&T is likely to depart from its historical practice of footprint-wide technological upgrades with respect to LTE even absent this transaction.

They may be right, but this is wishful thinking at a time when millions of Americans are struggling.  The best course of action at this point is to improve incentives for corporations to increase capital investment, improve productivity, capture market share and create more jobs.   The Feds should obviously approve this merger, because the record clearly shows that the companies are willing to undertake a massive net increase in capital investment, now.

What about the counter-argument that if there are fewer wireless providers, that may lead to consumer price increases down the road?  We can worry about that later.  Right now, we need to worry about the unemployed.  Incidentally, increasing supply in wireless is very simple.  The FCC can simply award additional spectrum for mobile communications.  Almost everyone agrees that this is the best tool the government has to promote competition in wireless.

The FCC committed another unforgivable error when it tried to blow up this merger.  This is not the first time the commission has recklessly put entire sectors of our nation’s economy at risk while it conducts  idealistic experiments for attaining consumer savings through rate regulation or regulatory mischief in pursuit perfectly competitive markets.  The FCC’s cable rate regulation experiment in the early 1990s and its local telephone competition experiment in the late 1990s were both total failures and complete disasters.

This agency could use some humility, or some adult supervision.

  • http://stevencrowley.com Steve Crowley

    If AT&T makes false technical statements in support of the merger, should the Feds still approve the merger?

  • Hance Haney

    Please for forgive me if I have overlooked something, but I do not find the terms “false” or “inaccurate” in the analysis.  Without more facts, all I can say is that I can imagine some hypothetical scenarios where I might be inclined to answer affirmatively, and others where I might not.  Let me just add that I believe it is wasteful and unnecessary to have redundant merger reviews by the FCC and by the DOJ or the Federal Trade Commission.  The FCC conducts a broader review subject to a vague “public interest” standard that permits politicians, bureaucrats and lobbyists to practice a legal form of extortion.  The DOJ and the FTC should be the sole tribunals.  These agencies decide between themselves which one will review any particular merger.  I don’t know if the “false technical statements” to which you refer concern legitimate antitrust analysis as performed by DOJ or the FTC, or just political considerations of the FCC. 

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  • Trevor St. James

    at&t hasn’t exactly demonstrated stellar customer service recently.  In wireless or dsl service.  And they don’t exactly give a damn about employing Americans either when a lot of jobs have been outsourced to India.
    I think the service would be worse after this merger as at&t is so big now, the right hand never knows what the left is doing.  

  • Anonymous

    One false technical statement AT&T continues to make in support of the merger is that spectrum is the only way it can increase capacity. It says so in the video on this page:

    http://mobilizeeverything.com/#

    Do you agree with AT&T’s claim? I don’t. There are other ways to increase capacity, such as through the use of small cells, as I describe in this blog post:

    http://stevencrowley.com/2011/11/19/three-invalid-assumptions-that-make-the-fcc%E2%80%99s-spectrum-requirements-model-skew-high/

    Another thing AT&T has said in support of the merger is that it needs more spectrum so it can offer “streaming HD video.” Do you think it is practical to provide streaming high-definition television services over mobile broadband spectrum? I don’t, for reasons I describe in this blog post:

    http://stevencrowley.com/2011/04/22/streaming-hd-video-on-mobile-broadband/

    Lastly, I refer you Appendix C para. 32 in the FCC staff report, The staff says that in it’s Engineering Model, AT&T “effectively builds cell sites uniformly across a CMA instead of targeting congested sites.” Do you think this is reasonable? I don’t. The staff continues: “As a result, after cell splits are implemented in their Engineering Model, nearly all of the congested sites remain overloaded. The Engineering Model then resolves these congestion issues by building more expensive Outdoor Distributed Antenna Systems (“oDas”) and Indoor Distributed Antenna Systems (“iDas”) . The result of this error is that marginal cost estimates are overstated for two reasons: (1) cell site splits raise costs without relieving congestion and; (2) expensive oDas and iDas systems are required to relieve traffic congestion that should have been relieved by cell splits.”

  • Hance Haney

    Steve, thanks for these excellent points.  I’ll take a look at that video, but I suspect what is meant is that T-Mobile’s spectrum is the only practical solution for AT&T to keep up with the anticipated increased demand for wireless services.  

    In a somewhat lengthy set of comments describing the need for more spectrum allocated for mobile wireless uses, CTIA – The Wireless Association has stated the following: “While the FCC is technically correct that, to some degree, the capacity of a particular license can be increased by investing in more efficient modulation schemes or investing in infrastructure to enhance spectrum re-use, there are technical and economic limits to increasing capacity in existing bands.  These limits are being tested on carriers’ existing mobile allocations and the remaining efficiencies that might be wrung from existing spectrum bands will in no way meet the compounding demand for data services.”  See: http://fjallfoss.fcc.gov/ecfs/document/view?id=7020143313It may well take the FCC approximately 10 years to reallocate spectrum.  See the “Spectrum” chapter in the National Broadband Plan (p. 79), where it shows that previous reallocations each took 6-13 years.

  • Hance Haney

    Fortunately, some outsourced jobs are coming back (throughout the economy), and this merger is no exception.  AT&T promised that if this merger goes through it will bring 5,000 wireless call center jobs back to the U.S. that today are outsourced to other countries.  It also committed that there will be no job losses for U.S.-based wireless call center employees of T-Mobile or AT&T who are on the payroll when the merger closes, and that other redundant non-management T-Mobile employees will be offered another position in the combined company.  The Communications Workers of America have endorsed this merger.  See: http://www.judiciary.senate.gov/pdf/11-5-11%20Cohen%20Testimony.pdf

  • Hance Haney

    Here’s a source for the commitments I just cited: http://attpublicpolicy.com/wireless/att-response-to-fcc-staff-report/

  • Anonymous

    The link did not work for me, but I have read CTIA’s pleadings and points and agree with many of them. What I  find, though, is that they give, in my view, short-shrift to the gains to be had by offloading mobile broadband data onto small cells. As I discuss in my latest blog post, it is hopeless to achieve the same gains by adding spectrum. (In the same blog post, I pointed to the short-shrift the FCC gives to small cells as well.) To CTIA and the FCC, adding a cell means adding a $500,000 base station. Increasingly, and I think we’ll really see it ramp up next year (more so outside the US), it will mean a $100 access point hooked up to a fixed broadband connection at the home or office.

    I support more flexible assignment of spectrum so operators can trade more freely in as much of a market as it can be, with government having a role if that market fails. While no antitrust expert,  I think the answer to the competition issue in this case is to not block the merger, but to unlock spectrum rights and get spectrum to the people who value it the most, so there could be an additional competitor created. Lose a competitor, add 1 or 2 more. I object, however, to lobbyists’ debasement of engineering in support of their arguments.

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