The Corner

Telcom Merger: Rhetoric vs. Reason

“Monopoly … duopoly … reckless consolidation.” This is just a sampling of the inflamed rhetoric that pervades the public discussion and official comment to federal agencies regarding the proposed merger of AT&T and T-Mobile. But rhetoric goes only so far. Thankfully, consumers will benefit most when this merger is judged by the merits: competition, access, and the quality of the most vibrant wireless market in the world.

One threat to an even-handed assessment of the economics is that some feel compelled to view the merger through the lens of anachronistic thinking dating to a previous generation. Yes, Ma Bell was a potent monopoly 40 years ago. But put simply, Ma Bell dominating the wireline market is hardly relevant in a 21st-century telecommunications environment.

To see this, drop for a moment the intellectual blinders of 1970 and focus on empirical analysis. The DOJ’s “Horizontal Merger Guidelines” lay out a formula (the Hirschman-Herfindahl Index) for determining the state of competition and whether a monopoly exists. In this index, a value of 10,000 denotes a complete monopoly, while a value of zero indicates infinite competition.

In the case of 1970s-era Ma Bell, the HH index was almost 8,000 (one of many reasons it was eventually split up by regulators). This merger, if successful, wouldn’t result in an index value even half as high as Ma Bell’s, especially when taking into account the varied Internet and local options for communications.

Any cry of “duopoly” largely ignores the tech boom of the last 15 years. Today’s vibrant communications world is a place where prices per minute have dropped 88 percent since 1996, and per megabyte costs are expected to fall from $0.42 to just $0.02 in the next three years. That’s because the nature of competition is not just AT&T versus Verizon and Sprint, but mobile voice versus mobile data; national carriers versus regional carriers; and metropolitan areas versus rural communities. Today, a majority of Americans already have at least five facilities-based providers, and claims of a single company dominating the market, when any consumer can use a Wi-Fi connection to make a free call, are simply unfounded.

Thus, the proposed $39 billion deal is far more complicated than the rhetorical echo chamber of television and the blogosphere would like the public to believe. Today’s telecommunications market consists of a varied and ever-expanding array of platforms: WiMax, VOIP, Skype, Google Voice, etc.

Consider Skype and Google Voice. Combined, they have more than 20 million users and many can communicate for free, avoiding the hassle of monthly plans and contracts. Similarly, facilities-based providers like MetroPCS also offer à la carte pricing plans, untethered from the bureaucracy of some larger national carriers, and any free app can connect users to VOIP technology. This is not the communications environment of the rotary phone and expensive long-distance calls.

These are among the many reasons why permitting either the FCC or the DOJ to dictate how the wireless world will develop over the next decade is a mistake that will harm, not help, consumers demanding more advanced mobile platforms.

It is ironic that intervention in this merger is such a reflex among federal regulators, since, to some extent, this merger is driven by the scarcity of available bandwidth — and what is the source of the scarcity? Federal inaction. The president has committed to freeing up more than 500 MHz of bandwidth. Yet the federal government still owns 61 percent of the most “usable” broadband, between 174 MHz and 4 GHz.

The scarcity of available spectrum means the U.S. needs to find a way to get more capacity from the spectrum that exists today. Because consumers won’t wait, and our economy can’t wait until more bandwidth is auctioned, the market drives a response. Enter AT&T and T-Mobile.

Competition, access, quality, and innovative wireless services. Those are the right criteria by which to judge mergers and acquisitions — not reliance on outmoded thinking and indices. A 21st-century communications world will require a sensible government-policy foundation and billions of dollars in private investment. If consumers, shareholders, and the wireless market can benefit from this transaction, then there is little need for a prescriptive regulatory approach that won’t help consumers or our mobile infrastructure.


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