For a moment there I was thrilled that AT&T and T-Mobile were merging, thinking how great it’ll be to finally get reception this coming Easter at my family tobacco farm down in Cody, Virgina.
OK, fine, so it can’t happen in only a week or two.
Whatever my anticipation, others’ knives came out fast. The group Public Knowledge called the merger “unthinkable” because the 2nd and 4th largest carriers combined would “control” (note that word choice) 44 percent of the wireless market (other’s say it’d be 39 percent); and wants us all to tell Obama to halt the transaction. You read that right. Obama–the president!–should prohibit a normal business transaction under shareholder capitalism. Even if Public Knowledge is right about market share, the merged entities would notcontrol 66 percent of the market, others still would; moreover markets will evolve in response to the merger.
Alas, this is a voluntary business transaction; therefore it’s routine, not an aberration, for Washington to delay it. The Economist wants the merger stopped, too, equating the telecommunications industry’s collapse into the exclusive franchises of a century ago (which made it illegal to compete with incumbents) with the phenomenon at hand today, the very expansion of the realm and reality of communications technologies as such.
We’ve called this political process of micromanaging large-scale free enterprise by the name “antitrust” for these past 121 years. Of course the process isn’t anti-trust at all, when what it actually does is overtly enable coziness between government and certain opposed business entities. Antitrust, you’ll recall, is the same smokestack era doctrine under which it’s a crime for your prices to be higher, lower or the same as anybody else’s. And of course, no business on its own wields the raw compulsion that Public Knowledge wants to see a politician unleash.
Antitrust often derails free enterprise at the behest of a target’s competitors, when, in reality, shareholders, business partners and the capital markets via hedge funds and value investors are well equipped to punish misbehavior or over-reach; that’s precisely what competitive enterprise and stock exchanges are for, as well as such mechanisms as shorting stock when managers make bad business decisions. Similarly, as John Tamny pointed out on Forbes.com, there are very good reasons why, if AT&T and T-Mobile sought to jack up prices in a disadvantageous way, they would not have secured the financing for this deal. Competitive markets are precisely for such discipline.
Unfortunately the AT&T and T-Mobile train-ride for the next year-plus is just one of many ongoing interventions that collectively do untold damage to wealth creation in America. These companies aren’t alone in the antitrust crosshairs. For example, Apple’s Steve Jobs is being required to answer to lawyers because Apple doesn’t go out of its way to make life easy for online music competitor RealNetworks. Google’s antitrust woes are only beginning, with a FairSearch coalition arrayed against its acquisition of ITA Software and probably most anything new it tries to do. Fifteen years after a 40-year case against IBM finally ended, it’s been back under investigation again in the U.S. and overseas–still over mainframes and the software running them. Comcast and NBC are merging, but that took nearly two years.
Perversely, speaking of undermining the market’s discipline of firms, Apple’s “discipline” of Google was investigated when it was accused of limiting Google ads being served on its devices. Whichever was the good guy or the “bad” guy, they’re both big boys and can work such things out.
So, bottom line, thanks to the regulatory mindset, the AT&T and T-Mobile merger faces “antitrust barriers” and a “steep climb at the FCC; and even if they merge the government likely will require large compulsory divestitures.
OK. But we still don’t have any AT&T reception down in Cody, VA (that’s midway between Brookneal and Gretna on Rt. 40, y’all). To me, the “barrier” of note is the one to getting reception in Southside. Rural availability was supposed to have been one of Obama’s goals too.
Complaints about horizontal mergers with competitors as opposed to companies at other vertical levels traditionally face more scrutiny. The merger is $39 billion; Opponents are right that it’s big.
But then again, it’s not so big. Of the top 25 global firms by market capitalization, the smallest is $168 billion Wells Fargo (as of March 28). AT&T happens to be number 23. The deal is just over half the size of the 100th largest company (United Parcel Service). These rankings shift every day. And just as a practical matter, considering that alongside consumers all of corporate America depends on mobile communications, these guys better behave themselves.
Consumers’ interests are also hurt by intervention’s impact on the future. Economist Bruce Owen has noted that while merger reviews focus on the transaction at hand, the greater effect may be the signals the investigation sends about how authorities will view future transactions.
Antitrust proceedings and delays–and before this one, those of Echostar/DirecTV, Sirius/XM and others–can harm consumer interests and the communications marketplace. There is too much tolerance of Federal Trade Commission, Justice Department and Federal Communications Commission interference in today’s communications-saturated world, and too much tolerance of competitors who properly should have no say in whether or not a rival’s merger goes forward. If they really thought prices would rise, they’d applaud (since they could raise their own). So they have to be thinking something else.
The result of all this is that we are increasingly surrounded by a corporate world that is distorted; one that does not resemble and is less competitive that what free enterprise would have actually implemented, a “free” market twisted in a direction it never would have taken, one in defiance of shareholder capitalism and actual market pressures.
To those rivals that might feel satisfaction at the barriers and future conditions put on this merger if it’s even “approved” (a term inappropriate to free enterprise): Political disapproval of this merger makes it easier to put others in the crosshairs next time.