By Jordan Crook
It’s no surprise that Sprint (S) isn’t down with the AT&T (T)/T-Mobile merger, and with good reason. There’s no telling how severe the effects of this deal may be on Sprint, but we know that it won’t be good. So with no other option, the carrier has campaigned against the merger since day one. We’ve seen statement after statement, release after release, but this time Sprint is taking a new approach. Today it threw Sprint's weight behind a study that debunks claims made by AT&T and the Economic Policy Institute that the merger would create “tens of thousands of jobs,” and goes so far as to say the deal will result in a reduction of American jobs.
The study was commissioned by Sprint and conducted by David Neumark, professor of economics and director of the Center for Economics and Public Policy at the University of California at Irvine. It focuses mainly on the EPI’s analysis of the merger and its conclusion that the increased capital investment made by AT&T would, in turn, increase American jobs. Neumark’s issue with this is that the EPI’s conclusion rests solely on increased capital investment, rather than the overall effects of the merger.
AT&T recently promised to bring back 5,000 call center jobs that had previously been outsourced abroad. The company also said the merger would result in no call center job losses, though in the official documents AT&T admits that some “force reductions” would occur.
Neumark also notes that AT&T’s logic behind the job creation claims is based on one figure: $8 billion in increased capital expenditures. The only problem there is that the figure is unclear. AT&T may very well pump an extra $8 billion into its business, which would increase jobs, but that’s only if the investment in capital expenditures T-Mobile would have undertaken are less than $8 billion.
The EPI analysis claiming that the AT&T/T-Mobile merger will create jobs because of increased capital investment is completely unfounded. It is based solely on a claim by AT&T that it will increase its capital expenditures. But it appears to ignore reductions in capital expenditures that T-Mobile would have undertaken, and the strong likelihood that net capital expenditures would decline as a result of the merger. Indeed AT&T has told the federal government and its investors that the merger would lead to reduced capital expenditures. By EPI’s own logic, the net reduction in capital expenditures would lead to fewer jobs.
The study concludes that if AT&T/T-Mobile’s net capital investment is reduced by $5 billion, that would result in 34,000 to 60,000 jobs lost. Neumark also cites AT&T’s history with mergers, and the way those have affected job creation/loss in the past:
Since 2002, AT&T has eliminated over 107,000 jobs relative to the growth in employment that would have occurred from the acquisitions that occurred during that time period. This evidence is consistent with AT&T’s past mergers generating job loss.
Here’s what AT&T has to say about the study:
Frankly this is a woefully flawed study with no factual underpinnings. For example, it ridiculously assumes T-Mobile will continue to spend and invest at the same levels it did before its parent company, Deutsche Telekom (OTCPK:DTEGF), cut off its funding. We have made firm commitments on jobs, including bringing back 5,000 jobs to the U.S. from overseas, and that wireless call center employees on the payroll at closing will not lose their jobs. This is in addition to the thousands of new jobs from our $8 billion investment to integrate the companies’ networks and expand new mobile broadband technology. That’s more than Sprint has ever done.
Obviously there’s much more than job creation to consider when it comes to this deal. Anti-trust issues and the potential stifling of innovation carry just as much weight. The possibility that AT&T’s network will be significantly improved will also play a major role in the decision.
But in the end, the statements made by both sides must be digested with a hefty helping of salt. AT&T stands to gain quite a bit if it wins T-Mobile, and its statements on the matter will be framed accordingly. In the same vein, Sprint stands to lose and the claims made within its commissioned study require an equal amount of scrutiny.
It all comes down to the DOJ and the FCC; as it stands now, AT&T still has a long battle ahead of it.