Our economy was built on a legacy of hard work, entrepreneurship and competition. Protecting that legacy, especially during times of economic hardship, must continue to be a priority. In reaffirming its commitment to ensuring competition, innovation and jobs in the wireless industry, the Department of Justice recently sued to thwart efforts by AT&T to takeover T-Mobile.
Media alerts notwithstanding, the Justice Department’s decision should come as no surprise. From an antitrust perspective, AT&T’s bid for T-Mobile was a nonstarter. DOJ carried out a thorough examination of the merger and concluded what we have been saying from day one: the elimination of T-Mobile as a national competitor and an industry maverick would likely lead to higher prices, lower quality service, and reduced innovation.
As alleged in the complaint, the proposed merger would reduce the number of significant competitors from four to three nationally and substantially increasing concentration in a multitude of already highly concentrated local markets. The merger raises a significant risk that the wireless market will revert to a duopoly, and the Justice Department correctly concluded the deal would “eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace.”
The government's lawsuit is a reasonable response to a potentially harmful merger. Blocking this merger, which would eliminate jobs just as in prior AT&T mergers, should be seen in the context of the national unemployment challenge. If AT&T were to invest in upgrading its network instead of buying one of its few direct competitors, it could increase the number of jobs. Strong antitrust enforcement isn't liked by large businesses that find their expansionist plans impeded, but a competitive economy promotes opportunity for small and mid-sized businesses, constrains prices for consumers, and stimulates innovation for economic growth.
Some question whether aggressive enforcement of the antitrust laws is a good idea when the economy is currently so troubled. In fact, when an economy is not doing well, this is the time that vigorous antitrust enforcement is most needed. In a downturn, companies use the argument that they must consolidate through mergers to achieve new efficiencies. But in actuality, it is well documented that, despite dramatic pro-merger forecasts of efficiencies, savings of any significance are rarely achieved by merger. Industrial consolidation typically exacerbates reduction of output, resulting in a loss of jobs and innovative products.
In the end, this merger is really about AT&T’s overreaching attempt to eliminate wireless competition. Concentrating an overwhelming amount of power into the hands of AT&T and Verizon – 88 percent of industry revenues – would enable these massive carriers to wipe out their remaining competition.
The American people weren’t fooled. Despite economic hardship, we still believe in and desire competitive markets where consumers have a wide range of choices, where prices are set by the interplay of supply and demand rather than being administered by highly concentrated industries or centralized government regulation, and where innovation is spurred through the rivalry of independent firms each seeking to build a bigger and better mousetrap.
DOJ's expeditious action is to be applauded because the proposal of merger by itself reduces the threat of T-Mobile engaging in aggressive and disruptive competitive behavior. The longer this plays out, the weaker will be T-Mobile.
Albert A. Foer is the president of the American Antitrust Institute.