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DOJ and FCC: Making the Wrong Call on Wireless Deal

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Unread 12.20.11, 10:09 AM
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DOJ and FCC: Making the Wrong Call on Wireless Deal

On 12.20.11 08:24 AM posted by Diane Katz

It’s rather remarkable, really, how willing federal bureaucrats are to block business deals that they speculate will cause price hikes and yet give nary a thought to foisting more than a trillion dollars annually in regulatory costs on the public.

That’s one takeaway from the news that AT&T has scrapped its proposed $39 billion acquisition of struggling T-Mobile USA (from Deutsche Telekom AG) after a bruising nine-month battle with the U.S. Justice Department and the Federal Communications Commission. Bureaucrats at both agencies concluded that the deal could (maybe, perhaps) hurt competition and (possibly, imaginably) lead to higher prices. The likely benefits—including improved service quality, network investment, and job creation—appear to have been ignored.

But given the state of the economy, should Washington really be dictating business decisions in telecommunications, one of the few healthy sectors out there?

Now AT&T must pay $3 billion to Deutsche Telekom (along with some spectrum) for failing to convince the government that the wireless market would remain competitive once the deal was consummated. We’re talking about a market that’s been growing exponentially in recent years, from little more than 5 million subscribers two decades ago to more than 300 million today—with no change in average prices for nearly 10 years.

But it is the growth of this market that prompted the deal to begin with. Faced with surging demand for a wealth of new services, AT&T hoped to gain additional spectrum. Short on cash and unable to compete effectively, T-Mobile was at risk of failing. Combining the two firms’ frequencies into a larger pool could improve service for millions of wireless customers and provide a larger network platform in which AT&T would invest.

Alas, no amount of concessions by AT&T, including divestiture of some assets, could convince the government that the acquisition would be beneficial. Evidently, the feds somehow believe they do a better job than consumers of ruling the marketplace. Why else would thousands of new regulations pour forth from government agencies year upon year? And the evidence of their competence abounds, right?

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