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Merger From Hell

 

AT&T announced over the weekend that it plans to buy rival cell-phone provider T-Mobile for $39 billion from Deutsche Telekom.  The New York Times reports this would be one of the largest mergers in the history of telecommunications, leaving roughly 80% of the market split between the new supersized AT&T and their chief rival, Verizon.  The “much smaller” Sprint/Nextel would have about 12%, and a group of “bottom tier” carriers would split the rest.

Investment analyst Jonathan Chaplin told the Times he has “never seen a deal with more regulatory risk be attempted in the U.S.”  There are obviously anti-trust considerations when two top competitors merge into one.  AT&T chief Randall Stephenson says the government should consider individual local markets, where those “micro-competitors” can give consumers many choices, instead of opposing the deal because it will leave only three major national cell-phone companies.

Sprint is understandably opposed to the deal.  T-Mobile’s in-house news blog quotes Sprint executive Fared Adib complaining, “When one competitor has that much buying power, they can determine the fate of different products.”  It should be noted that Sprint wanted to buy T-Mobile itself, but Adib still has a point.  It’s not difficult to imagine the new AT&T leviathan making life so difficult for little 12% Sprint that it eventually starts looking for a way out of the market, or finds itself sitting at the kiddie table with Metro PCS next Thanksgiving. 

The anti-trust issue will be a complex affair involving various compromises and concessions, not a simple matter of some bureaucrat shaking a magic 8-ball and holding up a triumphant “YES, DEFINITELY” to cheering AT&T and Deutsche Telekom executives.  Government regulators are deeply concerned about maintaining competitiveness in a market… right up until the government takes it over, at which point stifling monopolies become super awesome.

As a matter of free market principles, companies must have some ability to execute mergers, and if a new mega-corporation doesn’t serve its customers well, it will soon find innovative piranha nipping away at its market share.  Consumers looking at this deal might anticipate some improvements in service from the combination of AT&T and T-Mobile infrastructure… along with some headaches, as T-Mobile is already talking about the need to replace everyone’s phone at some point in the near future.  Full disclosure: I’m a T-Mobile customer, and this “replace my phone” initiative could make me either very happy or extremely grumpy, depending on how my new monolithic ultra-provider handles it.  I think more highly of monoliths that dispense cool new phones for free with minimal hassle.

One possible down side could be significant job losses.  Consumer groups interviewed by The Hill spoke darkly of “hundreds of empty storefronts in malls all over the country” and “the loss of thousands of jobs.”  AT&T, on the other hand, points to planned investments in infrastructure and says new jobs will be created.  Even if there is ultimately net job growth, there will certainly be some turbulence as some positions dissolve, while others are created.  It sounds like consumer advocates will press this argument on government regulators, but the idea of forbidding a business decision because it might destroy some jobs is a dangerous step deeper into the stale, centrally planned “buggy-whip” economy that has been suffocating dynamic growth.

A more serious concern springs from a dramatic difference between the AT&T and T-Mobile work forces: AT&T is heavily unionized, while T-Mobile is not.  The Communications Workers of America is positively salivating at the thought of getting thousands new compulsory-dues-paying foot soldiers from T-Mobile, whose workers have told the union to pound sand every time they were given a choice in the matter.  In the long run, that could prove to be a significant advantage for AT&T’s main rival Verizon, which is not unionized, which should give it room to undercut AT&T on consumer prices.

The story of the Merger From Hell will take a while to play out to its conclusion.  The future of our high-tech communications system will be glimpsed in the decisions made by corporate executives and government regulators, as well as the legal and economic reasoning behind those decisions.

 

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Written By

John Hayward began his blogging career as a guest writer at Hot Air under the pen name "Doctor Zero," producing a collection of essays entitled Doctor Zero: Year One. He is a great admirer of free-market thinkers such as Arthur Laffer, Milton Friedman, and Thomas Sowell. He writes both political and cultural commentary, including book and movie reviews. An avid fan of horror and fantasy fiction, he has produced an e-book collection of short horror stories entitled Persistent Dread. John is a former staff writer for Human Events. He is a regular guest on the Rusty Humphries radio show, and has appeared on numerous other local and national radio programs, including G. Gordon Liddy, BattleLine, and Dennis Miller.

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