Everyone says AT&T (NYSE:T) was surprised. I’m not sure why. Everyone expected some kind of pushback. Although, considering the scope and complexity of the deal, the Obama Administration’s lawsuit to stop the AT&T’s $39Billion acquisition of T-Mobile did come very quickly.
What are the issues? “Were the merger to proceed, there would only be three providers with 90 percent of the market, and competition among the remaining competitors on all dimensions, including price, quality and innovation, would be diminished,” said Deputy Attorney General James Cole. That pretty much sums up the government’s position. The merger is bad for consumers. We will suffer greatly due to lack of competition. The deal is bad for America, etc.
AT&T says it needs to buy T-Mobile so it can acquire the spectrum it needs to satisfy a data-hungry marketplace. “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed,” said AT&T General Counsel Wayne Watts. Pretty much exactly what you’d expect AT&T to say.
Even if this deal lives past this lawsuit, and that’s a big “if,” it will still have to be approved by the Federal Communications Commission, and FCC Chairman Julius Genachowski has also expressed his concerns about how the deal might impact competition. So look for a second fight that will be just as fierce.
As you can imagine, there are some very unhappy executives at both AT&T and Deutsche Telecom (OTCQX:DTEGF), which owns T-Mobile. If the deal unwinds, there are serious break-up fees and other issues that will make life generally miserable for the deal team and the bankers involved.
Here in America, the government does not own our communications infrastructure, big telecom companies do. They are all for-profit ventures with shareholders and they exist in a world of extraordinary bureaucracy and regulation. There are loopholes, to be sure. But, on the whole, private money builds the system and public money regulates it.
This worked fine for the past 100 years or so. 19th- and 20th-century networks were complex and high-tech for their day, but “Honey, hurry up, it’s Auntie Gayle calling long distance” didn’t require a lot of deep thought. The people in power forced AT&T to break itself up into smaller companies, and the RBOCs (Regional Bell Operating Companies) were born. They have reassembled over the past little while, and now we have AT&T and Verizon. This has been a monumental game of chess with various divisions organizing and reorganizing themselves (with the “help” of government regulations) into very profitable companies.
Which begs the question: Is America best served with two large infrastructure players, or one-and-a-half large infrastructure players, and two small ones that will either merge or exit the business, leaving two large infrastructure players?
How should our connected future unfold? In the Information Age, the ability to quickly and efficiently move bits of data from place to place is the one and only key competitive advantage. Should we abdicate our position as the most tech-savvy country on Earth because the leadership doesn’t now how to structure policy around the issue?
Play the two scenarios forward. If the deal goes through, you’ll have two huge wireless companies vying for customers. AT&T will finally be able to compete with Verizon’s network and, in theory, could actually offer a competitive product. Now, they really can’t.
If the deal does not go through, AT&T will have to raise money and build out their network if they want to compete with Verizon (which they do). This will effectively put T-Mobile and Sprint out of business anyway. Why? Because AT&T will have to compete on price while it builds, and that will put so much pressure on T-Mobile and Sprint that they will not survive.
Either way this deal goes, we are going to end up with a two-horse race. So, what is our government doing instead? Making lawyers rich with our tax dollars and dollars from our wireless phone bills. What will this lawsuit do to help American wireless consumers? Absolutely nothing.