Surrender by AT&T Is Victory for Consumers and Regulators

Even a behemoth like AT&T knows when it's licked.

 

The telecom giant says it's throwing in the towel on its $39-billion acquisition of rival T-Mobile — a deal that drew scorn from consumer advocates for being anticompetitive and strong resistance from the Justice Department and Federal Communications Commission.

 

Wireless users can notch this as an important win not just for a competitive marketplace but also for newly reinvigorated regulatory agencies that, for the first time in a long time, have ruled that bigger isn't always better when it comes to telecom services.

 

AT&T continued to insist Monday that the U.S. wireless market is "one of the most fiercely competitive industries in the world" and that the merger would have provided more resources for bandwidth-hungry smartphones and mobile devices.

 

By not being able to swallow T-Mobile and its 34 million users, thus creating the country's largest wireless service provider, AT&T said that "customers will be harmed and needed investment will be stifled."

 

Nonsense. Customers will be just fine as long as AT&T keeps competing and innovating to retain their business. And investment will continue flowing into wireless technology because everyone knows that smartphones, iPads and their ilk aren't going away.

 

A company like AT&T stifles investment in its wireless network at its own peril.

 

Critics denounced AT&T's bid for T-Mobile from the day the deal was announced in March, despite AT&T's assertions that the expanded network created by combining the two companies would be the best way to ensure that customers enjoy faster data speeds and fewer dropped calls.

 

That pitch unraveled in August when AT&T acknowledged to the FCC that it would cost about $3.8 billion to increase its own network to cover 97% of the country. In other words, it could achieve the same goals for customers at a fraction of the cost of climbing into bed with T-Mobile.

 

Andrew Jay Schwartzman, senior vice president of the advocacy group Media Access Project, said Monday that the proposed merger "clearly exceeded permissible standards."

 

"AT&T and T-Mobile thought they could push it through by using lobbyists and political pressure, but the FCC and Department of Justice held firm," Schwartzman said.

 

In a move that would have been unimaginable under the Bush administration, which seemingly never met a corporate merger it didn't like, the Justice Department filed suit in August against AT&T on grounds that the deal with T-Mobile would result in "higher prices, fewer choices and lower-quality products for wireless services."

 

Not to be outdone, the FCC then took the virtually unprecedented step of publicly releasing a staff report in November that tore the merger to shreds.

 

AT&T and T-Mobile getting hitched "would substantially lessen competition and its accompanying innovation, investment, and consumer price and service benefits," the report concluded.

 

AT&T responded with a statement saying the FCC report was "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."

 

Wrong. Any fair-minded person reading the report probably would agree with the FCC's conclusion that, contrary to AT&T's assertions, the merger wouldn't result in scads of new jobs and, contrary to AT&T's assertions, wouldn't result in lower prices or better service for customers.

 

If the deal went through, just two companies — AT&T and Verizon — would account for more than two-thirds of all wireless subscribers and nearly 80% of wireless industry revenue.

 

That's a whole lot of market power, and it's hard to think of a single instance in which that level of consolidation resulted in improved conditions for customers.

 

T-Mobile's wireless plans tend to be $15 to $50 cheaper than comparable AT&T plans, according to Consumer Reports. Does anyone seriously think that wireless users would be better off by eliminating such a player from the market?

 

That's not to say all mergers are bad. There are times when consumers can benefit from smaller, weaker rivals joining forces, such as the 2008 combination of satellite-radio providers Sirius and XM. Their strictly regulated marriage kept a relatively new industry alive and provided users with continuation of a valuable service.

 

But when a company with the size and breadth of AT&T seeks to erase one of only a handful of viable competitors, that's a play for market domination, pure and simple. AT&T wanted T-Mobile's wireless resources. But more important, it wanted T-Mobile's market share.

 

The Justice Department saw the deal for what it was, as did the FCC.

 

And now that AT&T has decided to move on, perhaps it too will acknowledge that this was a merger too far.

 

Until the next merger, that is.