Democracy & Technology Blog Blocking AT&T + T-Mobile merger will not create jobs

Blocking the merger between AT&T + T-Mobile is apropos of this administration’s strategy for creating jobs, according to James M. Cole, the deputy attorney general.

The view that this administration has is that through innovation and through competition, we create jobs. Mergers usually reduce jobs through the elimination of redundancies, so we see this as a move that will help protect jobs in the economy, not a move that is going in any way to reduce them.

Remarkably, someone forgot to include that in the complaint filed by the Department of Justice in the District Court for D.C. The complaint itself does not allege that the merger will cost jobs, nor does it suggest that blocking the merger would create or save jobs. As a technical matter, antitrust is not concerned with job protection, although many seek to exploit it for that and other purposes. More on why that is a bad idea in a minute.
Instead, the complaint is focused specifically on the possibility that the combined company may not longer offer T-Mobile’s lower-priced data and voice plans to new customers or current customers who upgrade their service.
Yet, the complaint concedes that from a consumer’s perspective, local areas may be considered relevant geographic markets for mobile wireless telecommunications services. On the other hand, enterprise and government customers require services that are national in scope, according to the complaint.

There are currently four “national” carriers, including AT&T and T-Mobile. But on a local and regional basis, there are many competitors. In fact, there are approximately 100 different wireless providers. So when the complaint talks about prices that “customers” pay, as a legal matter, it is talking about the prices that enterprises and the government pay. Basically, the government is admitting it cannot prove the merger would harm consumers.

More broadly, the complaint boldly promises that without antitrust enforcement, the free market might cease to function in this case.

[U]nless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger.

Innovation and competition increase worker productivity, as Russell Roberts recently explained when the President lamented that ATMs have replaced bank tellers. New products and methods of production destroy some jobs, but a more productive economy creates other jobs.

Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.

While Cole is correct that innovation and competition create jobs, the flip side of the coin is that other jobs become redundant in the process. If by “reinvigorating” antitrust it is meant that we will permit the private sector to create new jobs but not for redundant jobs to be eliminated, consumers will be forced to pay unnecessarily high prices. For example, if it only takes one CEO to manage an enterprise capable of providing wireless service to 130 million subscribers — where two CEOs are presently employed — consumers could save millions of dollars by eliminating one of the two CEOs.
Although redundant positions may be eliminated in a merger, mergers do not create redundancies per se. It is wrong to malign mergers, which simply permit more efficient business arrangements that potentially increase the value of an enterprise both as an investment opportunity and as a place to work.
In telecommunications, where economies of scope and scale are enormous, larger firms also have the potential to improve service offerings and lower prices for consumers.
The complaint also alleges that the merger will reduce incentives to invest that would exist absent the merger. This allegation is consistent with standard monopoly theory from the 1960s, which posited that a monopolist would rather leverage its monopoly position to restrict output and raise prices than invest in new facilities and increase output (that may lead to lower prices). In this case, however, the record shows that T-Mobile’s parent (Deutsche Telekom) plans to pursue investment priorities in Europe, not the U.S. “Deutsche Telekom has made it clear that it would no longer make the investments necessary to increase speeds on their network,” according to Larry Cohen of the Communications Workers of America. “AT&T has the financial resources to develop fully T-Mobile’s assets.” Since AT&T’s wireless traffic volume has increased 8,000% since the carrier began offering the iPhone, AT&T would appear to have an enormous incentive to invest in T-Mobile’s compatible network. If the government sees things differently, the complaint does not spell it out.
While the President wants to get the country moving again, ideologues in the Department of Justice are seeking an antitrust revival despite a dead-in-the-water economy. Ultimately, a revival would equal a return to the days when large public corporations were run by lawyers or political cronies, not MBAs. Antitrust is a product of the Industrial Age, which contributed to the economic stagnation of the 1970s. If anything, it is time to bury antitrust.

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.