Justice Department Announces Antitrust Probe of Telecoms

Published October 1, 2009

The U.S. Justice Department has announced the opening of a wide-ranging investigation into the wireless industry.

The August announcement followed on the heels of Sen. Herb Kohl’s (D-WI) request asking Justice to initiate a federal antitrust investigation of the nation’s telecom companies for “lockstep price increases” in text messaging rates.

James Gattuso, a senior research fellow in regulatory policy at the Washington, DC-based Heritage Foundation, believes Kohl is misinformed about the telecommunications sector and no government probe is warranted.

“Generally, looking at text messaging rates, they have been very competitive, and the industry is expanding,” Gattuso said. “Prices are going down in the wireless sector. This does not look like an industry in any shape or form that resembles an oligarchy or is engaged in any conspiracy to restrain trade.”

Kohl Slams Cell Market

In a letter to Christine Varney, the new head of the Justice Department Antitrust Division, Kohl said he thinks the “state of competition in the cell phone market” is in danger.

Wayne Crews, director of technology studies at the Competitive Enterprise Institute in Washington, DC, says Kohl was wrong to encourage Varney to investigate the telecom companies.

“I do not think there is anything to these pricing accusations,” Crews said. “And I do think Varney’s possible campaign against America’s wireless companies, especially in an economy like this is, is irresponsible.

“To engage in an antitrust investigation against some of the most important wealth-creating sectors of our economy is outright irresponsible,” Crews said.

Could Harm Consumers

Gattuso says an antitrust investigation could raise prices for text messaging.

“It seems by expanding antitrust activity there, we would be threatening customer welfare rather than helping it,” Gattuso said. “We could possibly end up, if a probe begins, with greater government regulation, less investment in the telecommunication sector, and higher prices.

“To have an antitrust investigation in the technology fields is a matter of concern to me because the technology field has been perhaps the most dynamic and competitive in our economy,” Gattuso added.

‘Absurd Government Meddling’

Crews agrees, saying the investigation reminds him of previous antitrust battles in the tech sector that did more harm than good.

“I have this ‘here we go again’ feeling about this antitrust talking against the telecom sector,” Crews said. “When the Internet burst on the scene in 1995, everyone was saying it goes too fast and we need to regulate it. But by the time the government did anything, the marketplace had moved on.

“Instead of realizing how dynamic the technology sector is, the government went after Microsoft, the AOL-Time Warner merger, and the Echo Star and DirectTV merger,” Crews added. “It was absurd government meddling in the markets. The whole antitrust enterprise is fraudulent, based on the notion that a few regulators and agents in Washington know more and can do better than all those people out in the field.”

Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.