Obama Merger Blockage Distorts Telco Market

Published May 31, 2016

Proponents of market freedom are often derided for repeating the mantra that government should never be allowed to select winners and losers in the business arena. But if this is something of a cliché, it should come as no surprise the trope applies to the Obama administration’s approach to telecommunications policy.

Specifically, the Federal Communications Commission, Department of Justice, and Federal Trade Commission were directed by the Handwringer-in-Chief to scotch the proposed merger of AT&T and T-Mobile in a myopic attempt to ensure competition among national wireless carriers. It turns out their Harrison Bergeron handicapping of the telecom industry resulted in disappointing quarterly results for all but one telco—Verizon.

Verizon, not surprisingly, picked up 500,000 customer subscriptions in the first quarter, roughly equal to the number of subscribers lost by T-Mobile. AT&T registered barely recognizable growth, while Sprint’s loss, according to the Wall Street Journal, widened “to 42 cents from 15 cents.”

Real Houswives of Telco

Before this whole merger kerfuffle began, Verizon was the top telco with approximately 34 percent of the national market, AT&T was runner-up with 31 percent, and Sprint was Miss Congeniality with 16 percent. Fourth-place T-Mobile had just 11 percent of the market, and smaller carriers divided up 9 percent.

T-Mobile’s parent company, Deutsche Telekom, was unhappy with its returns from the telco and sought to sell the company. Negotiations with Sprint came to naught, so DT began discussions with AT&T, which apparently thought garnering 42 percent of the market was in its best interests.

The result reads like a “Real Housewives of …” episode. A merger between AT&T and T-Mobile was proposed. Sprint threw a hissy fit like a spurned lover, claiming the deal would somehow hurt the company’s market position, although how moving from third place to third place can be interpreted as anything but “nothing happening here, move along, folks” is beyond normal human comprehension. Verizon would’ve dropped to Number Two, a position where, we’re always told, you’re supposed to try harder.

Hemorrhaging Red Ink

But the president and his appointees, notably FCC Chairman Julius Genachowski, streaked their faces with mascara over what they saw as a wireless duopoly in the offing.

They intervened, as is their habit, telling AT&T it should be happy with its current market share and someone else would reap the benefits of T-Mobile’s spectrum holdings and customer contracts, even perhaps the jilted Deutsche-Telekom, which was breathing heavily to seal the $39 billion deal with AT&T rather than continue to hemorrhage red ink.

But Washington knows best, dear readers, or at least imagines it does. The fallout revealed in the 2012 first-quarter results, of course, couldn’t have been predicted with any degree of precision, but the bureaucratic meddling in the marketplace certainly caused a major market distortion. In attempting to ensure competition in the wireless market, the Obama administration has enabled the market leader, Verizon, to pick up customers as quickly as T-Mobile sheds them. That’s what they call competition these days.

Consumer Freedom Ignored

Overlooked by the government’s night sweats over competition is one key component: consumer freedom. Without Obama’s heavy hand on the scale, individuals simply purchase a smart phone subscription from one carrier or another according to their individual needs. If a customer doesn’t like AT&T and Verizon because he or she believes they form a duopoly, Sprint or another carrier will gladly take the business.

Or customers can forego a subscription altogether by going to prepaid and pay-as-you-go plans, which is where the real growth in the wireless market is today. Industry analysts predict the national market for subscribers has more or less topped out at 215 million, while tens of millions of U.S. citizens clamor for wireless service without contracts.

Regulators couldn’t have predicted this turn of events, which is why they should have kept their noses out of the merger in the first place rather than attempting to promote competition in an industry that defies crystal-ball prognostications.

Bruce Edward Walker ([email protected]) is managing editor of The Heartland Institute’s InfoTech & Telecom News. This essay originally appeared in The Washington Times.