In light of Verizon’s acquisition of billions of dollars of spectrum from the cable operators, it now seems apparent that AT&T’s proposed merger with T-Mobile is even more important to the interests of consumers. Verizon is poised to acquire spectrum that would cover 259 million American’s, giving it the ability to drastically increase its level of service and build out it’s 4G network to cover millions more Americans.
Why does this matter? Because AT&T is attempting to do the same for it’s customers in its acquisition of T-Mobile. Verizon is poised to greatly increase its quality of service and build out its 4G network with this spectrum purchase. AT&T is mostly interested in T-Mobile to do the same. As Holman Jenkins at the Wall Street Journal right points out, if the Verizon deal is allowed to go through and the AT&T deal isn’t, then “Verizon leaps so far ahead that it’s becoming Verizon versus a distantly trailing pack.”
And as a Bernstein Report points out, if the Verizon deal is approved it makes things very murky for T-Mobile’s future:
This increases pressure on Deutsche Telekom (the parent company of T-Mobile) to find a way to close a deal with AT&T. If this deal is approved, and DT’s own deal with AT&T is rejected, then it leaves T-Mobile with fewer options – the most likely being continue with their current “challenger” strategy, while hoping for a resolution with the AT&T deal, or otherwise wait for more spectrum auctions or potentially partner with Dish Network….All in all, this amounts to a poke in the eye with a sharp stick for DT, for whom the cable industry was the best hope for an eventual joint venture or IPO.
The news of the spectrum purchase is especially interesting considering the release of the FCC’s report on the AT&T/T-Mobile merger. The report has been attracting a great deal of flack for its perceived one-sidedness. Both Larry Downes in The Hill and Geoffrey Manne writing at Forbes do a good job of picking apart the biases and problems found in the report. Perhaps the best comes from At&T itself:
We expected that the AT&T-T-Mobile transaction would receive careful, considered, and fair analysis. Unfortunately, the preliminary FCC Staff Analysis offers none of that. The document is so obviously one-sided that any fair-minded person reading it is left with the clear impression that it is an advocacy piece, and not a considered analysis.
In our view, the report raises questions as to whether its authors were predisposed. The report cherry-picks facts to support its views, and ignores facts that don’t. Where facts were lacking, the report speculates, with no basis, and then treats its own speculations as if they were fact. This is clearly not the fair and objective analysis to which any party is entitled, and which we have every right to expect.
The fact that such a harsh response would come from a company that still has to bring their business before this agency is telling, in my opinion. I would urge you to read through the entire post at AT&T, which does a pretty good job of laying out all of the problems that most have pointed out with the FCC’s report.
The FCC report also worries about job losses as a result of the merger. This short-sighted thinking ignores the fact that the merger would lead to billions in investment and could create thousands of new jobs. An analysis by the Economic Policy Institute says that for every $1 billion that companies invest in infrastructure, 12,000 jobs could be created. Do the arithmetic on the $8 billion that is proposed to be invested, and you have quite a few jobs. Hance Haney, writing at Tech Liberation Front, sums it up pretty well by citing Jeffrey Immelt, the head the President’s jobs council:
Immelt realizes that when government tries to preserve wasteful methods, firms become uncompetitive and lose market share. That’s a recipe for unemployment. The FCC staff analysis has got it completely backwards. When politicians set out to “create” jobs, it is often at the expense of productivity. We don’t need that kind of “help” from Washington.
If you’re worried about competition, then by allowing the AT&T merger to go through you would ensure that Verizon has a strong competitor for years to come, which is not only good for the market, but good for the consumer. These strong competitors would help to drive innovation and lower prices for in the high-speed wireless market, while ensuring that the market remains competitive, with AT&T, Sprint, Verizon, and a host of regional players giving consumers strong options when selecting a wireless plan.
If anything, the Verizon deal and the AT&T merger should at least make one thing clear to government regulators: the need for more wireless spectrum to be made available to wireless companies. Tom Hazlett, a scholar at the Mercatus Center, writes:
[S]pectrum allocation is the essential public policy that enables—or limits—growth in mobile markets. Spectrum, assigned via liberal licenses yielding competitive operators control of frequency spaces, sets “disruptive innovation” in motion. Liberalization allowed the market to do what was unanticipated and could not be specified in a traditional FCC wireless license. That success deserves to grow; the amount of spectrum allocated to liberal licenses needs to expand. Additional bandwidth raises all consumer welfare boats, promoting competitive entry, technological upgrades, and more intense rivalry between incumbent firms.
More spectrum for wireless companies is essential. If government agencies don’t allow companies to acquire it through mergers or sales, where do they think it will come from? Because as is pointed out in the above paper, government bureaucracies aren’t doing a bang up job in freeing anymore spectrum up anytime soon.
The AT&T/T-Mobile merger, just like the Verizon deal, would bring better service and high-speed wireless Internet to thousands more consumers. President Obama has called for 98% of Americans to have high-speed wireless Internet within 5 years. If the President and his administrative agencies are truly concerned with expanding this access to this many Americans, then allowing the merger and allowing the sale of spectrum to Verizon would go a long way in making this happen.
Zack Christenson is a Chicago-based digital strategist who writes on tech policy.