The announced acquisition of T-Mobile by AT&T has started the predictable drumbeat about whether federal regulators (the Federal Communications Commission and the Justice Department) should let such a “large” firm emerge. The proposed acquisition is an important moment for the development of broadband in the United States, for competition policy more generally, and for the prospects for growth overall. So I am watching with interest how this plays out.
Monopolies are bad and the exploitation of monopoly power is against the public interest, so the first question is whether this is a monopoly. Clearly not, as T-Mobile was far from the only competitor to AT&T. Instead, this is now one large (-er) firm competing with multiple other firms (notably Verizon). The situation is more complex and the policy response important.
The first thing to note is that already we are seeing calls for a presumptive regulatory response — perhaps as strong as barring the purchase. This is reminiscent of other policy debates in recent years — financial services, health care, and carbon come to mind. In each case, there was an enunciated policy goal — ensure adequate risk-management, lower the cost of health care and insurance, and alter the energy portfolio of the United States. And in each case, the path chosen was riddled with regulation and mandates attempting to dictate the outcome.
The alternative approach would be to harness competition to meet policy goals. Financial firms competing for scarce investor capital and customers will have natural incentives to manage their risk–return tradeoffs as long as regulations don’t embody the moral hazards of too-big-too-fail. Similarly, competition among insurers and providers would be a boon to the American family or small business facing higher premiums. And finally, if one wants to reshape our energy portfolio, nothing will work quicker that dumping the legions of ineffective subsidies and intrusive regulations, and letting a simple price signal trigger competition.
The same is true in wireless broadband. Strong competition will provide the incentives for innovation, investment, and customer pricing that everyone agrees are the desirable future of this critical sectors. So why the reflexive rush to additional regulation?
Size doesn’t really matter in any of these areas; competition does.
I expect that some will argue that regulations are needed to ensure competition. But that ignores the other strong traditional tool of competition policy: anti-trust reviews. That is, check on the actual state of market completion — the nearness of prices to costs, the profit rate, barriers to entry, and so forth. The FCC has long been on the wrong page on this front, preferring ex ante, prescriptive regulation to checking for the quality of actual competition (most notably with its repeatedly misguided attempts on network neutrality). But under both parties, the Justice Department seems also to have accepted the notion that the only goal is to write the regulatory rules. It used to be the case that even conservatives understood the need for strong market competition and the desirability of ensuring that it takes place.
So, at least for me, the AT&T purchase of T-Mobile is another way to see whether the U.S. will continue down an overly regulatory, prescriptive approach to competition that is doomed to fail, or will instead permit firms to price, innovate, merge, and even close as they see fit, with the policymakers checking on the actual state of market competition and imposing remedies only when it is found to be inadequate.
Overly regulatory or not... Yea, whatever.
I'm a T-Mobile customer - have been for 7 years. I can't stand AT&T. If there was any justice in the world, any!, AT&T would go the way of the Yugo (their network is about as reliable) and T-Mobile and Verizon would run the world.
Did you read the press release from the AT&T CEO? Is he running for the second biggest bu** kisser of this administration (after Immelt)?
Reply to this commentLinkReport AbuseThe captcha is dire.
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So far, I haven't seen a single argument, including at NRO, that this deal will drive down prices. Who doesn't believe AT&T and Verizon will settle into a comfortable duopoly where prices increase in tandem and services are reduced or curtailed at a regular, constant pace?
Also, how might this affect T-Mobile's very cozy relationship with Google and the Nexus 1 handset? AT&T and Google do not get on well.
With this deal, cellphone innovation is effectively dead until the next market disruption appears. With Verizon carrying the iPhone now, it could spell the end for the Android platform. That would be a true disaster...
Reply to this commentLinkReport AbuseIt's quite debatable as to whether a wireless communications sector comprised entirely of two massive remnants of Ma Bell would actually be competitive (Sprint is a dying weak sister with few prospects for survival). If the duopoly standards of wired internet are any indicator (in that case where captive markets are split between the local telephone and cable TV incumbents), "competition" would be in name only, and certainly not driven to either improve pricing or customer service.
Reply to this commentLinkReport Abuse"Who doesn't believe AT&T and Verizon will settle into a comfortable duopoly where prices increase in tandem and services are reduced or curtailed at a regular, constant pace?"
A duopoly is still competition. However, there is Sprint and there are several other telecommunications carriers such as Centurylink, Ameritech, SBC. Yes, those are hardlines, but are you going to say you have a right a cell phone?
"With Verizon carrying the iPhone now, it could spell the end for the Android platform."
Except more phones use Android than use iPhone OS. I wouldn't worry about this.
Reply to this commentLinkReport Abuse"If the duopoly standards of wired internet are any indicator (in that case where captive markets are split between the local telephone and cable TV incumbents), "competition" would be in name only, and certainly not driven to either improve pricing or customer service."
You do realize that DSL and cable are not the same as it was in the year 2000, right?
Reply to this commentLinkReport AbuseIf AT&T will just donate a few million to the DNC, all charges will be dropped.
Reply to this commentLinkReport AbuseYou guys are forgetting about the competition from IP providers. That is a very rapidly growing portion of the communications market.
Reply to this commentLinkReport Abuse" . . . . the first question is whether this is a monopoly. Clearly not, as T-Mobile was far from the only competitor to AT&T. Instead, this is now one large (-er) firm competing with multiple other firms (notably Verizon) . . ."
These are conclusory statements not backed up by facts. There is already a de facto cartel, with market power, amongst the wireless carriers. A merger of AT&T and T-Mobile will eliminate all United States GSM competition and pare down the national carrier competition (such as it is) from 4 to 3 carriers, with only two carriers particularly healthy.
United States wireless innovation has been suppressed for years, as such innovation has not been in the interests of the dominating carriers. Wireless pricing in the United States is and has been surprisingly high when compared to wireless pricing in other developed countries. T-Mobile actually competed on price (as Sprint does, as well, to a lesser extent).
So, to summarize, additional reduction in the already small number of national carriers. Elimination of any competition in the U.S. GSM sphere. Elimination of price competitor T-Mobile.
I'm as free-market, anti-anti-trust as anyone, but this is a textbook case of when anti-trust regulation should be brought to bear to block the merger.
Reply to this commentLinkReport Abuse.."so the first question is whether this is a monopoly. Clearly not, as T-Mobile was far from the only competitor to AT&T.."
Wrong. AT&T will be the only GSM provider in the US. Try taking your Verizon iPhone with you out of the country. Try also to tell AT&T you would prefer not to pay for their data plan, even if you purchased your iPhone elsewhere.
This merger is bad.
Reply to this commentLinkReport Abuse"United States wireless innovation has been suppressed for years, as such innovation has not been in the interests of the dominating carriers."
So...DSL moving from an average of 256K to 40MBPS has been imaginary? Wireless going from 1X to 4GS in an even shorter timeframe was imagined? How about splitting phone service from DSL so that you can only get a DSL line? Turning a cable line into phone service? How can you say the above when reality does not bear your assertion out?
"A merger of AT&T and T-Mobile will eliminate all United States GSM competition and pare down the national carrier competition (such as it is) from 4 to 3 carriers, with only two carriers particularly healthy."
The competition is not over the type of network, as Verizon Wireless is the only CDMA provider left after it purchased Alltel (I seem to recall these same arguments were made then). The competition is over providing customers with the best product and service.
"I'm as free-market, anti-anti-trust as anyone, but this is a textbook case of when anti-trust regulation should be brought to bear to block the merger."
Always the qualifier, which means that you're really not free-market or anti-anti-trust.
Reply to this commentLinkReport Abuse"You do realize that DSL and cable are not the same as it was in the year 2000, right?"
Indeed... the cost of bandwidth today is very nearly negligible compared to a decade ago, and most of the incumbents have passed on making substantial upgrades or dropping prices in favor of milking their current systems. The recent move towards metered billing is another dead giveaway; there is no demonstrable shortage of bandwidth, but there's plenty of fear of juicy television billing being lost to online providers like Netflix or Hulu.
You're not seriously arguing that the cable/telco duopolies, built out under sweetheart deals from local, state and federal governments are anything like a competitive market, are you?
The cable and telco incumbents are not remotely interested in competition; the proof is in the fact that one cable or telco never competes with another, except in very rare markets. They're interested in squeezing protected territories.
Reply to this commentLinkReport Abusechrisboltssr, Sprint, US Cellular, Metro PCS, Cricket, and others operate CDMA networks. Alltel and Verizon were hardly the only two. If you'd like to only discuss large, nationwide carriers, fine. We've still got Sprint.
I doubt you recall "similar arguments" at the time since nobody sane would have ignored a carrier with over 50 million customers.
Reply to this commentLinkReport AbuseAverage DSL speed--even in the rare instances when the advertised speed is reached--isn't anywhere near 40mbps. It's less than 10. Conflating FTTH (avoided like the plague by AT&T, one of the players in the original post) with copper DSL doesn't do your argument any favors.
Neither does claiming "splitting phone service from DSL so that you can only get a DSL line" as a measure of improvement on the part of the telcos. Dry-line DSL was a simple matter from a technical standpoint, but the big telcos hemmed and hawed and made bogus excuses about allowing it for years, fearing (correctly) that they'd lose millions of POTS lines if their customers were given a choice.
As much as it pains me to say it, "naked" DSL didn't become a reality in most markets until regulators forced AT&T to offer it as a condition of the BellSouth acquisition.
Reply to this commentLinkReport Abuse"chrisboltssr, Sprint, US Cellular, Metro PCS, Cricket, and others operate CDMA networks. Alltel and Verizon were hardly the only two. If you'd like to only discuss large, nationwide carriers, fine. We've still got Sprint."
You ask the number of people who are subscribers to wireless service what type of network they use and you'll be hardpressed to find a large number who actually know. In other words, it's technobabble that only geeks and techies know, which is probably why when you see the commercials on TV neither Verizon Wireless nor T-Mobile nor AT&T make a stink about CDMA vs. GSM. What customers care about are two things: Connecting to the network and ensuring they don't get dropped calls. They don't care about what kind of network it is, only that the network works. It doesn't matter if AT&T is the only GSM carrier in the nation: If AT&T starts providing poor service it won't matter how superior GSM technology is to CDMA, AT&T is going to suffer. Also, bear in mind that GSM is only beneficial to those who travel overseas; CDMA is the preferred technology in the United States as attested by you.
"You're not seriously arguing that the cable/telco duopolies, built out under sweetheart deals from local, state and federal governments are anything like a competitive market, are you?"
Jimmy, read the end of that sentence and tell me where the problem lies.
"The cable and telco incumbents are not remotely interested in competition; the proof is in the fact that one cable or telco never competes with another, except in very rare markets. They're interested in squeezing protected territories."
That's interesting, seeing as how I always get bombarded with circulars for me to switch services. I happen to live in an area where I can get cable, phone, satellite, and wireless service at competitive rates. What about you?
"Average DSL speed--even in the rare instances when the advertised speed is reached--isn't anywhere near 40mbps. It's less than 10. Conflating FTTH (avoided like the plague by AT&T, one of the players in the original post) with copper DSL doesn't do your argument any favors."
No one conflated anything here except you. Another commenter pointed out there was no innovation in the telco industry. Reality states otherwise. How can you make such a statement when even in an era of consolidation there is still innovation going on?
Also, state regulators tried to force some telcos to unbundle the DSL from phone service, but FCC overrode them. That being said, Qwest, the local phone company in my area, did it voluntarily and they're better off for it, consumer-wise and keeping the man off the back wise.
Reply to this commentLinkReport Abusethe proof is in the fact that one cable or telco never competes with another, except in very rare markets. They're interested in squeezing protected territories.
Jimmy, you are aware that the reason why cable operators almost never compete with each other is because that is the way local govts have designed the system?
Reply to this commentLinkReport AbuseIf you want to blame anyone for a lack of competition, blame the local politicians who get rich from that arrangement.
"If you want to blame anyone for a lack of competition, blame the local politicians who get rich from that arrangement."
Done and done; the cozy deals behind most cities' cable franchises have always been scandalous, and the governments involved bear no small amount of blame. That doesn't excuse the cable operators from avoiding direct in-city competition, or the baby Bells from avoiding competing with each other outside their territories. Those arrangements were always sold as a requirement for paying for the build out, but rates somehow always go in one direction, years and years after that build-out is completed.
Reply to this commentLinkReport AbuseI switched from AT&T to T-Mobile over a year ago because T-Mobile offered better pricing. Given that AT&T's prices are currently high despite competition from T-Mobile, what are the chances that after the merger, AT&T's prices will come down to T-Mobile's?
Reply to this commentLinkReport Abuse"That's interesting, seeing as how I always get bombarded with circulars for me to switch services. I happen to live in an area where I can get cable, phone, satellite, and wireless service at competitive rates. What about you?"
Competitive rates compared to what? Look around the world sometime and see what the rates are like for areas where competition is allowed on the same lines. The Bells used to have to compete with independent ISPs under the '96 telco bill; they successfully had that requirement gutted out, killed their competition, and have been raising rates ever since.
Certainly the duopoly players compete against each other for market share, but they don't compete on price (thus all the "limited time offer" get-in deals in all those fliers; they bear little resemblance to the extravagant rates after your intro deal expires).
"Jimmy, read the end of that sentence and tell me where the problem lies."
It takes two to tango. The fact that governments allowed the incumbents to build monopoly networks through franchise arrangements does not make blameless the telcos or cablecos for milking those then-captive markets.
Reply to this commentLinkReport AbuseI use AT&T And iPhone. Phone is great, AT&T is horrible. The pricing is insane for 2 phones at over $200 a month and I literally have service 2/3's of the time at best. I often get an influx of text messages all at once that number 10-20 and were sent over a period of a few hours.
T-Mobile is much better priced for phone service, that would vanish. They forced MaBell to break up and now all the baby bell's are back as a duopoly if this goes through. I say it stinks, better to have plenty of options or you get no quality and pay a fortune for lack of innovation and poor service. Once my contract is up in June I would rather go to T-Mobile and get a better plan with a simple cell phone and use my laptop for everything else as the iPhone isn't worth it unless you have great connectivity, which I never will apparently, even though I pay for it.
Reply to this commentLinkReport Abuse"Competitive rates compared to what? Look around the world sometime and see what the rates are like for areas where competition is allowed on the same lines."
First of all, why would I care about what goes on around the world? Secondly, in many other countries, there is no competition. Deustche Telekom is the de facto telecom for Germany. Japan has NTT DoCoMo, which is a state-funded outfit. Mexico has TeleMex, majority owned by oil magnate Carols Slim. I have the choice to switch from wireline to wireless, cable to satellite, satellite to wireless, and so forth. The rates are very competitive, but I stick with my six year old DirecTV package, my Qwest DSL and my Verizon Wireless service because they've all provided me great service.
"The Bells used to have to compete with independent ISPs under the '96 telco bill; they successfully had that requirement gutted out, killed their competition, and have been raising rates ever since."
So you're blaming the Bells for getting a law passed, which, last I checked, was perfectly constitutional, but not the pols for not saying no to them? Is that right?
"Certainly the duopoly players compete against each other for market share, but they don't compete on price (thus all the 'limited time offer' get-in deals in all those fliers; they bear little resemblance to the extravagant rates after your intro deal expires)."
Then what do they compete on, air? Shouldn't consumers read the fine print before they switch or consider the rationale for switching? I do. I read the fine print all the time. I also weigh the pros and cons of switching, which include other tangible factors such as switching numbers and having to build up my reputation with a new company. Price alone could never get me to switch and people who switch on price alone should blame themselves for allowing it to be the ultimate arbiter for switching services. It is still proper for people to carry blame for their own bad decisions, right?
"It takes two to tango. The fact that governments allowed the incumbents to build monopoly networks through franchise arrangements does not make blameless the telcos or cablecos for milking those then-captive markets."
Again, the fault is not the telcos. It is the government. The government allowed the monopoly to be built in the first place, but you want the government to again solve the problem? Is that right? Does that make sense to you?
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