Even More on AT&T + T-Mobile

by Reihan Salam

(1) Matt Yglesias has a thought-provoking post on the Communications Workers of America’s enthusiasm for the merger:

 

Basically, AT&T is unionized while the other cell phone operators aren’t. So what’s good for AT&T is good for the Communications Workers of America and the takeover presents an opportunity to organize the T-Mobile workforce.

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The optimal strategy for a private sector labor union is to represent the workforce of a monopolist and then team up with management to lobby for regulatory barriers to new competition. This is why the CWA aligns with AT&T on telecommunications policy, and it’s also why manufacturing unions typically favor high trade barriers. A labor union can deliver much more value to its members if the unionized entity is a predatory monopolist. Given that reality, I can hardly begrudge unions from lobbying on behalf of their members’ interests the same way that trade associations and business lobbies do. But I don’t know any progressives who think that it’s an “anti-labor” view to want a competitive telecommunications sector or that appropriate enforcement of anti-trust law is a union-busting plot. Efforts to expose domestic manufacturers to competition from foreign manufacturers or big city public school systems to competition from charter school operators tend to play quite differently with the progressive audience but it’s the exact same structural situation in all cases. [Emphasis added]

Matt has made the point that tax-funded public services create a powerful political dynamic in favor of the expansion of said services regardless of whether they’re delivered by public or private entities, which strikes me as a sensible observation. It’s also true, however, that limiting collective bargaining rights can ameliorate some of these excesses. That said, for-profit public service delivery might create a new set of problem, particularly if elected governments created funding formulas that are easily gamed. 

(2) Tim Lee praised Jerry Brito’s post on the role spectrum scarcity has played in driving consolidation in the telecommunications industry, and with good reason:

 

I’m not sure this merger will have a negative effect on competition. Many high sunk costs industries are perfectly competitive with just two or three players. (I’m look forward to a good analysis on that question, perhaps from our own Geoff Manne of Josh Wright.) What I do know is that if you are worried about competition, antitrust policy is not going to solve the long-term issue of artificial scarcity, which is the real problem here.

Entry is possible. In fact, a new entrant in the wireless market is waiting in the wings in the form of the cable industry with the spectrum they acquired in the AWS auction. Before they can start offering services, however, they must move incumbent users of the bands they acquired. There is also Clearwire, part owned by Comcast, Time Warner, and Google–serious competitors to the Bells.

If we really got serious about reallocating broadcast and inefficiently used federal spectrum, we might not have to worry competition. We’d likely see new entry, and access to spectrum would be less of a reason to acquire a competitor.

Tim goes further, arguing that there are times when advocates of limited government have to intervene in a market to address pathologies that result from past government interventions:

Consider the 1984 breakup of AT&T. In some sense, this was government interference in the marketplace. But in the larger context of federal telecom policy, it was clearly an effort to undo some of the damage done by earlier government policies. After decades of pro-monopoly telecom regulation, AT&T had become ade facto creature of the state, enjoying outsized profits and control over their customers thanks to government regulation. Breaking the company up was a way of reducing this state-conferred power and getting us closer to the state we would have reached in a competitive market.

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A similar principle seems to apply here. The Big Four wireless carriers are not monopolies or government-sponsored entities, but like Ma Bell they enjoy enhanced profits and power thanks to government-created barriers to entry. And it seems likely that their profits and power would be magnified by further consolidation. Blocking the merger, then, might be less a matter of the government interfering with the free market—which it has been doing constantly since 1926 anyway—as trying to ensure its ongoing interference with the free market doesn’t have larger anticompetitive effects than necessary. In other words, once the government has created a four-member oligopoly by force of law, it has an extraresponsibility to prevent collusion among its members.

Regulation, however, is a second-best approach for Tim:

 

My first choice would be comprehensive spectrum reform that would put the majority of the electromagnetic spectrum under a flexible-use property regime. Then there’d be plenty of spectrum available to firms that wanted to enter the wireless market and no need for government review of wireless mergers.

But that isn’t the world we live in, and so we have to think about second-best policies. And as with Fannie and Freddie, I think that might mean a certain amount of regulation. Those regulations should be as narrowly targeted as possible on mitigating the problems with the broader regulatory structure—in this case, the anti-competitive effects of artificial spectrum scarcity.

This strikes me as an important point that I neglected in my earlier posts. The AT&T-T-Mobile merger underscores the need for comprehensive spectrum reform.