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With AT&T's proposed takeover of T-Mobile, consumer and market benefits are an illusion

AT&T essentially says in an FCC filing that bigger is better and that reducing the number of competitors in the market will increase competition, add jobs and spur innovation. And it trots out paid economists to support its fairy-tale logic.

April 29, 2011|David Lazarus

AT&T says its $39-billion acquisition of T-Mobile would be good for consumers. So let's take a trip down the rabbit hole and see how that would work.

In a nearly 400-page filing with the Federal Communications Commission, AT&T essentially argues that bigger is better when it comes to wireless service.

"AT&T faces network spectrum and capacity constraints more severe than those of any other wireless provider, and this merger provides by far the surest, fastest and most efficient solution to that challenge," the company says.

"This transaction will thus benefit consumers by reducing the number of dropped and blocked calls, increasing data speeds and dramatically expanding deployment of next-generation mobile technology."

AT&T says that by adding about 34 million T-Mobile subscribers to AT&T's 96 million-strong customer base, this will "create new jobs and economic growth in the small towns and rural communities that need them most."

Moreover, the merger would "leave the wireless marketplace fiercely competitive" and "intensify broadband competition throughout the United States."

And as if that weren't enough, AT&T says "the transaction will promote America's global leadership in mobile broadband innovation."

There you have it: Good for consumers, good for competition, good for the country.

Needless to say, there's been no shortage of criticism from consumer advocates, tech analysts and even rival service providers that AT&T has it wrong, and that the deal would be bad for consumers and bad for the wireless market.

Sprint, for example, said that if AT&T acquires T-Mobile, there will be "an entrenched duopoly" — AT&T and Verizon — controlling about 80% of the wireless market.

A coalition of public-advocacy groups said in their own filing with the FCC that the merger would "enable AT&T to suppress competition, stifle innovation and harm consumers."

Indeed, it seems to defy common sense that by reducing the number of competitors in the market and by having only two service providers cast such a long shadow, a merger between AT&T and T-Mobile would be in consumers' best interests.

"Our acquisition of T-Mobile won't hurt the marketplace," responded Lane Kasselman, an AT&T spokesman. "If anything, it will make the marketplace more competitive."

He said a new breed of smaller wireless companies such as Clear and Leap would respond to AT&T's and Verizon's heft with innovative services and aggressive pricing. They'd give consumers even more choices down the road, Kasselman insisted.

This is, of course, wishful thinking. Yes, there may be room for niche players seeking a piece of the wireless action. But if only two companies account for about four-fifths of the market, it's clear who'll be calling the shots.

Still, I didn't want to dismiss AT&T's pro-consumer claims out of hand. So I went in search of free-enterprise-minded economists who might be able to elaborate on the company's position.

James Gattuso, a senior research fellow at the Heritage Foundation, compared a wireless market dominated by AT&T and Verizon to a soda market dominated by Coke and Pepsi. "There's still room for other providers," he said.

Sure, I just can't get enough Royal Crown Cola.

Similarly, Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank, said the FCC should greenlight the merger and see what happens. If fixes are needed, he said, they can be made once any problems become clear.

"We need vigorous competition — no one disputes that," said Holtz-Eakin, a former economic advisor to President George W. Bush. "But I haven't seen anything yet that says this deal will be demonstrably bad for consumers."

Unless, that is, you count the disappearance of the country's fourth-largest wireless company and its focus on offering plans that are cheaper than AT&T's and Verizon's packages.

For me, the real heart of AT&T's filing with the FCC is an ostensibly unbiased analysis of the merger by a trio of economists affiliated with a consulting firm called Compass Lexecon.

"We conclude that the proposed transaction will promote competition by enabling the merged firm to achieve engineering-based network synergies that increase network capacity beyond the levels that AT&T and T-Mobile USA could achieve if the two companies continued to operate independently," they write.

Those synergies, they say, will create incentives to improve wireless service. For that reason, the merger "will not result in harm to consumer welfare."

What the economists neglect to mention, but AT&T's Kasselman acknowledged to me, was that AT&T paid them for their insights.

Meanwhile, the very real prospect exists that Verizon would respond to the AT&T deal by acquiring Sprint, and then we truly would face a situation in which only two companies control nearly all wireless service nationwide.

By AT&T's logic, this would be even better for consumers.

By AT&T's logic, we'd actually be much better off if there was only one dominant wireless provider. This would allow for the most efficient use of resources while providing consumers with the best service at the lowest price.

Impossible to believe? Not with a little practice.

As the White Queen says to Alice: "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."

And that concludes our visit to Wonderland.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com.

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