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.