To the Rescue: T-Mobile’s Decline Requires American Investment to Save Jobs

In light of the recent public clamor by a few special interest groups, such as today’s press conference hosted by so-called “consumer advocates,” and Department of Justice filings opposing the AT&T acquisition of T-Mobile, it is worth considering a few facts about the issue. 

 

The industry continues to exhibit tremendous growth and declining prices, as would be expected from a dynamic, competitive and innovative industry.  Yet, not all is well for T-Mobile.  By one estimate, T-Mobile has lost roughly 1.3 million customers (pre- and post-paid) and their level of network investment has declined by over 20%.  While other carriers are investing into 4G technologies, Deutsche Telecom, T-Mobile’s owner, appears to be satisfied with the older 3G technology, whereas all of the other major wireless carriers have committed to investing in the latest wireless broadband technology. 

 

The fact is that Deutsche Telecom does not want to invest in the U.S. company, instead opting to unload it.  With falling subscribership and investment, and without an acquisition, whether by AT&T or another company, T-Mobile could be in serious trouble.  

 

As in any competitive market, some firms do very well in satisfying consumer demand, and some firms falter.  Given the current state of the Federal budget deficit, policymakers should avoid bailouts and allow this potentially failing firm to be purchased, in order to minimize disruption to the public, encourage investment and job creation, and fully utilize our national spectrum.

 

Lastly, the wireless industry, like all network industries, gains tremendous efficiencies through economies of scale and scope.  Because of high-fixed costs, scale leads to productivity improvement, as measured by lower per unit costs.  In turn, this means that market concentration is the only means by which consumers can achieve the lowest possible prices.  In other words, consumer welfare is maximized by having only a few firms.  Economic theory is absolutely clear that market structure alone is not a determinant of market power.  Hypothetical arguments made by opponents regarding increased prices have no basis in fact and have never been observed in the telecommunications sector.     

 

Given these facts, we encourage the Federal Communications Commission to do its homework and not be persuaded by unfounded predictions, scare tactics or hypotheticals.  Clearly, T-Mobile’s spectrum needs to be fully and efficiently utilized, consumers should have access to 4G LTE technologies, and policymakers should encourage increased investment and jobs in the U.S. economy. 

 

If a German company won’t invest in the U.S., let a U.S. company make that investment.  Whether that added investment comes from AT&T is immaterial, something must be done to rescue T-Mobile.

 

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a 501c3 educational and research institute.

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