The Power of Government over Competition

At the Consumer Electronics Show this week, when FCC regulatory chairman Julius Genachowski was asked about the FCC’s opposition to the now nixed AT&T/T-Mobile proposed merger, he replied that this was a “reminder of the benefits and power of competition.”  But his explanation of this point suggests that it is government that creates competition, not markets.

He points to 70-years of “fluid” antitrust rules as providing regulators more flexibility in decision-making, which ironically means that regulators have more freedom to approve or oppose mergers not based on clearly codified rules but at the whim and mood of regulators.  That flexibility gives competitors less certainty about regulations and antitrust laws, and it puts government officials in a position to decide market winners and losers—which long term could freeze investment and infrastructure development.  The idea that government provides market benefits to consumers is nonsensical, and it represents what Consumer Electronics Association president Gary Shapiro called “the power of government.” 

The reality is that the FCC has harmed wireless consumers.  The AT&T proposed merger was solely for one purpose – to get precious and scarce spectrum that would permit it to provide high-speed wireless Internet services to consumers.  True, the deal would have eliminated one competitor, but that competitor was sitting on underutilized spectrum, as well as losing both money and customers in a fast growing market.  The alternative to better utilizing the spectrum means slower service for consumers and a greater reliance on usage-based pricing to ration demand.  Neither of these outcomes benefits consumers.  Ironically, the current shortage in spectrum is the direct fault of the FCC and Congress by not freeing up spectrum for auction.

Failure of the merger means that network expansion becomes more costly, deterring investment.  In addition, it means that AT&T will owe $4 billion to the German parent company of T-Mobile.  It is hard to understand how moving potential investment overseas will help American consumers or how it will speed up wireless broadband services. 

What the lack of clarity in antitrust rules has accomplished is not a demonstration of the power of competition, but the power of government.   

Steve Pociask is president of the American Consumer Institute

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