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Democracy & Technology Blog Why would Sprint oppose AT&T/T-Mobile merger? What could Sprint hope to gain?

Sprint’s CEO, Dan Hesse, worries that “too much power” would be in the hands of AT&T and Verizon Wireless if AT&T acquires T-Mobile USA.
sprint_nextel.03.gifSprint has been losing customers and revenues ever since its own problematic merger with Nextel in 2005. The carrier lost about $3.5 billion last year alone. Although Sprint’s troubles would not be solved if regulators block a merger between AT&T and T-Mobile, Hesse’s words suggest the possibility that Sprint may nevertheless urge policy makers to block the deal.
This is not sour grapes; it is a shrewd abuse of the regulatory process, which provides a golden opportunity for struggling competitors and others who are well-connected politically to practice legal extortion. For example, AT&T could be forced by the Federal Communications Commission and the Department of Justice or the Federal Trade Commission to sell assets at firesale prices, or to provide services to Sprint at overly-generous prices. AT&T could literally be forced to subsidize its competitor.
This raises the question whether government can and should intervene to preserve the wireless industry as a whole? As a general matter, when government intervenes to protect weak competitors it risks diverting private investment away from enterprises that are well-managed and efficiently-configured to firms that couldn’t otherwise proposer in a free market.

A market with three equally strong providers would certainly be more desirable than a market of two, if that were possible. The only option we may have here is a market with only two self-sustaining competitors plus a third participant that would have to be nurtured by regulators and subsidized by rivals. Artificial competition like that does not promote consumer welfare. A market where there are no winners or losers is stagnant in terms of investment, innovation and ultimately better services and lower prices.
Executives like Hesse have a fiduciary obligation to shareowners to maximize returns, using any legally available means. This includes the recruitment of politicians and bureaucrats – who, although well-intentioned, may not fully grasp the consequences of their actions.
Officials, on the other hand, are supposed to represent the people. Although desperate for deep-pocketed patrons in reality, policymakers are not expected in theory to associate themselves with special interest clients.
The merger review and license transfer processes are not the only options policymakers have to generate unjust enrichment for Sprint. For example, Sprint and other allies are already in Washington seeking “pro-competitive” regulation, in this case urging the FCC to require wireless providers to carry their competitor’s customer data traffic at “just and reasonable rates … coupled with a robust FCC enforcement mechanism to enforce it.” Another name for it is a government-mandated subsidy.
Sprint’s pleadings in a related proceeding reveal what the carrier means by the term “just and reasonable rates.” Sprint believes vendors who supply essential inputs should not be free to set prices according to the value of their product or service. Prices should reflect costs, according to this theory. Retailers, not producers, would reap the full rewards of entrepreneurial skill, foresight and industry. In a competitive economy, these rewards are ultimately shared between producers, middlemen and consumers.
There is no reason for a Depression-era bureaucracy like the FCC created in 1934 to regulate a dynamic and competitive wireless industry. The average price of airtime declined from 47 cents per minute in 1994 to 5.4 cents in 2008. Meanwhile, wireless carriers are embarking on a massive new round of investment in fourth generation networks. This market is generating enormous consumer welfare.
Regulators have an unfortunate predisposition to seize or contrive opportunities to tinker with free markets in vain attempts to achieve superior results. Unfortunately, regulators have no responsibility for profits and losses. Their failures are attributed to unforeseen events, or to private sector greed or short-sightedness. And, sorry to jump on this bandwagon, but they also enjoy lifetime employment with gold-plated pensions and health benefits. In other words, they bear no responsibility for their mistakes. This fundamental disconnect is reason for policymakers to exercise extreme caution.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.