AT&T has yet to prove merger will help market

This commentary from The Los Angeles Times does not necessarily reflect the views of The Spokesman-Review editorial board.

The Justice Department filed suit Wednesday to block AT&T’s proposed $39 billion takeover of wireless rival T-Mobile USA, with its top antitrust lawyer declaring, “Any way you look at this transaction, it is anticompetitive.” Only the most ideologically hidebound supporters of the deal ever claimed it would boost competition, however. The question has always been whether the benefits it could deliver would outweigh the loss of an innovative, low-priced service provider. That’s a far murkier issue. Nevertheless, the department is right to place its faith in competition, not efficiency, as the consumers’ best ally in the long run.

On the surface, the deal is a garden-variety acquisition – a big company trying to get bigger by snapping up a smaller rival. What sets it apart is the increasing importance of wireless data services to the U.S. economy. Apple’s introduction of the iPhone (on AT&T’s network) in 2007 triggered an explosion in smartphones and the mobile services they support. Many tech-industry executives fear that the growth can’t be sustained, however, because mobile networks may not be able to meet the burgeoning demand for bandwidth.

AT&T has billed the proposed takeover as way to avert that problem. Combining the two companies’ networks will increase capacity by enabling more efficient use of their airwaves. And expanding AT&T’s customer base will help it justify spending billions of dollars to extend service to rural and remote areas, its executives contend.

The same sorts of arguments could be made for almost any merger of direct competitors. The bigger a company is, the more economies of scale it can achieve. But with less competition, it will be less motivated to innovate or keep prices low. That’s why antitrust laws exist: to balance the benefits of consolidation against the costs.

AT&T plans to fight the Justice Department’s lawsuit in court. Its supporters argue that the feds are striking the wrong balance and threatening the continued growth in wireless, one of the rare bright spots in the U.S. economy. That’s one vision of the future. Antitrust enforcement is predicated on a different vision, one that counts on competitive forces to overcome the hurdles that arise in the marketplace.

T-Mobile may not prove to be an effective supplier of wireless broadband, given the reluctance of its current owner, Germany’s Deutsche Telekom, to make the necessary investments. But just by competing for subscribers, T-Mobile presses all other wireless carriers to improve their services and hold down their prices.

As the Justice Department’s lawsuit shows, AT&T hasn’t made a persuasive case yet that consumers would be better off in the long run if that pressure were relieved.