AT&T and T-Mobile merger would foster competition

T-Mobile has lost customers in every quarter since late 2009 and its owner, Deutsche Telekom, has stated clearly that it will no longer make the necessary investments to compete.  In this light, the merger makes technological sense. Since both AT&T and T-Mobile use the same technology, the merger will allow them to enhance current services and free up capital to deploy 4G infrastructure faster – again, competing for consumers.

by Grover G. Norquist

It’s unsurprising to watch foes of the free market calling on Congress and federal agencies to block or heavily regulate the merger of AT&T and T-Mobile. They point to the pre-1980s telephone monopoly era, claiming a lack of competition and stagnated innovation are poised to return. Yet, while they demand government block or lob conditions on the merger, they fail entirely to recall that it was government which caused those mid-20th century problems – not the free market.

Prior to Ronald Reagan’s presidency, a single company controlled virtually the entire nation’s telephone service under the protection and de facto authority of the federal government. Beginning in 1934, AT&T was a government-sanctioned and heavily regulated monopoly. The Federal Communications Commission didn’t just regulate service and prices, but actively took steps to prevent competition. And thanks to this level of government involvement, there was very little advancement of technology.

With the support of the Reagan Justice Department and the winds of the 1980s deregulatory culture behind its back, a federal judge issued a consent decree in 1982 to break up the government-sanctioned monopoly and allow competition to flourish. Just months earlier, the Reagan administration had also ended an over decade-long anti-trust investigation into IBM. The Justice Department determined that though IBM was the largest computing company at the time, the government was unlikely to win and the case was “without merit.” As former Reagan official Peter Ferrara noted, failing to break up IBM “did not stop the IT revolution that has taken place since then.”

Reagan knew that the anti-trust laws can be used against the free market, and that once a government monopoly has been ended, the market – not more laws and regulations – is the best way to protect consumers and encourage innovation and job creation.

Reagan’s ending of the AT&T monopoly was about deregulation and freeing markets – not more regulation or preventing companies in a free market from merging. Yet, more government interference is exactly what merger opponents are calling for, expressing concerns of fewer players and market concentration. This is a myopic view of competition.

Competition is not just the number of companies or their share of the market. It’s the practice of how businesses jostle to win over consumers. Competition is not a number; it’s the process bringing new and innovative products to the market that consumers want while pushing prices down. It is, as the late Austrian economist Friedrich Hayek argued, a rivalrous process of discovering and delivering what consumers demand, and doing it more efficiently and better than your competitor.

Critics are right that the past decade has seen restructuring, convergence and concentration in the wireless market. But even if 96 percent of Americans can choose between at least three mobile providers, this is not a real measure of competition or market performance. As numerous telecom companies merged over the past decade, the average price for wireless service was slashed in half. The federal government’s General Accountability Office last year found that prices for service had dropped in every year since 1999.

As prices went down, mobile carriers invested over $250 billion over the past three years out-deploying each other in high-speed mobile broadband technology. Consumers gobbled up nearly three-times more mobile data last year than in 2009, and are demanding faster speeds from carriers to keep up.

Meanwhile, T-Mobile has lost customers in every quarter since late 2009 and its owner, Deutsche Telekom, has stated clearly that it will no longer make the necessary investments to compete. In this light, the merger makes technological sense. Since both AT&T and T-Mobile use the same technology, the merger will allow them to enhance current services and free up capital to deploy 4G infrastructure faster – again, competing for consumers.

Merger opponents are not calling for Reagan’s vision of a free market that has brought today’s successful wireless market. They are calling for a return to the heavily regulated environment that existed until the 1980s. They are demanding a host of restrictions and mandates to be placed on companies trying to operate in the free market. They are doing so even if the company-specific regulations pick winners and losers in the market. They are ignoring the past thirty years of burgeoning innovation under fewer regulations, and the consequences of the fifty years of stifling regulation that preceded it.

Lobbing regulations onto a merger or preventing it altogether only restricts companies from trying to better offer what consumers demand. The foundation of our free-market system that was at the core of the Reagan Administration is that companies making decisions in a market free of intrusive regulation become more efficient at delivering what consumers want.

A combined AT&T and T-Mobile is poised to become the largest operator in the country. But it’s certainly not the largest telecom merger in recent history, and it won’t make the company any less competitive or innovative as the current number one carrier. Instead of regulating competition, let’s let the free market drive competition.

Grover G. Norquist is president of Americans for Tax Reform and chairman of the Ronald Reagan Legacy Project.

 

Post to Twitter Post to Facebook Post to LinkedIn Post to Reddit

Posted by at 09:30 | Posted in Government Regulation | 35 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Moe

    Germans love to lose money. Look what they did to Airborne! And now Greece.
    Nothing has changed.

    • David Appell

      I wouldn’t laugh too much at Germany — right now their economy is the envy of most. Unemployment: 6.9%. Hourly pay: up 30% since 1985 (US: up 6%). Germany avoided the housing bubble. They have a smaller budget deficit. Perhaps not coincidentally, they also believe government has a role in the marketplace. 

      • Moe

        Touche! I will move to there now.

  • 3H

    So…  we get more competition by having fewer choices?   Instead of having, say, 5 choices for my cell phone company, I will have only 4.  And this means greater competiton?  How Orwellian is that?  More is less?   How does this benefit the consumer?   How does their getting bigger mean that there is more competition?   If they use their economic clout to undercut and drive another competitor out of business…   does that mean having 3 choices instead of 4 means even MORE competition?  

  • 3H

    What happens when monopoly stiffles innovation in order to maintain market share?   What happens when prices are fixed and maintained because there is no longer any competition? 

  • David Appell

    Norquist wrote, of AT&T:And thanks to this level of government involvement, there was very little advancement of technology.

    That’s incredibly FALSE. In the years 1934-1984 AT&T made huge strides with their network and with other technologies. The phone system went from a simple analog network to a digital switching system. Innovations like 800-calling, virtual networks, transatlantic cabling, and digital cellular technology happened. Phone use went from a new technology to a cheap, reliable commodity. Their research arm, Bell Labs, won *four* Nobel Prizes for spectacular inventions like the photovoltaic cell, transistor, and CCD. They invented UNIX and the C programming language. They also discovered the signature of the Big Bang. They founded information theory. 

    I can’t think of any other company in history with this kind of impact, not even Microsoft. And a lot of this happened because they had a govt-granted monopoly and so the ability to innovate and take risks that didn’t require an immediate profit. It’s hard to argue with such results.

    Norquist is an idiot.

  • FreeMarketThinker

    When government tries insert itself into free-markets by standing between vendors and businesses we almost universally lose.  It would be a big mistake for regulators to stand in the way of ATT essentially bailing out out a failing business like T-mobile.

    • David Appell

      When government tries insert itself into free-markets by standing between vendors and businesses we almost universally lose.

      And your proof of this is…what? Something more than a philosopher’s words.

  • 3H

    So, if I understand correctly.. a monopoly supported by the government is bad.  A monopoly that comes about because of various market results.. is good?

  • 3H

    So, if I understand correctly.. a monopoly supported by the government is bad.  A monopoly that comes about because of various market results.. is good?

  • Founding Fathers

     Right wing logic:

    Tax cuts increase government revenues.
    Freedom for gay people is tyrannical.
    Reduced competition is more competition.

    Man, I knew I should have gone in to neuroproctology.

    • valley dude

      You forgot war is peace. 

      • Founding Fathers

        Yes, and stupidity is intelligence.

      • Founding Fathers

        Oh, and lying is “telling it like it is”.
        And supporting the ultra-rich at the expense of everyone else is “standing up for the little guy”.
        And having as your hero a President who presided over the near-tripling of the national debt shows your dedication to fiscal responsibility.

  • Reper

    Why stand in the way fo a good business decision?

  • John in Oregon

    I have had policy differences with Norquist however David Appell’s “facts” are far from disproof of Norquist.

    There is no doubt that a skunk works organization such as Bell Labs opens up new technological understanding.  That Howard Vollum cultured that climate of experimentation within Tektronix was a key factor in its technological dominance. 

    But do the facts support Appell’s contention?  Beginning with Bell Labs.

    In 1929 Bell Labs invented broadband coaxial cable, the first broadband transmission medium.  The technology was quickly adopted by broadcast, short wave radio and the military.  The technology remained fallow within AT&T until the space race pushed government to write tariffs allowing the technology as a product within Bell.

    The first transistor was invented in 1925 when the Canadian patent was issued to Julius Edgar Lilienfeld.  By 1947 Bell Labs found a sufficiently different kind of transistor that was patentable.  During the patent squabbles Raytheon picked up the license to manufacture the junction transistors, releasing the CK722 which spurred semiconductor product development.

    Discovery of the cosmic background.  Working an off books project at Bell Labs Penzias and Wilson in true Ham Radio traditions experimented with a disused Echo 1 satellite receiver originally built to detect radio waves bounced off echo balloon satellites. The first transatlantic cable began operations in August of 1858.  During the 1910 – 1930 period Bell Labs developed multiple voice cable technologies such as SSB and analog FDM.  It was not until 1955 that an actual transatlantic telephone cable was installed.UNIX and the C programming language.  After Bell Labs canceled the programming development for the company GE645 mainframe computer as a failure, Dennis Ritchie continued an off books project working on a DEC PDP7.Norquist however paints an incomplete picture which suggests that, the Reagan administration alone was responsible for the changes at AT&T.  That’s far from true and diminishes the free market arguments that Norquist supports.Norquist is correct that under the regulation of the FCC the telephone market remained essentially unchanged from 1934 to 1974.  In 1970 the cost of a three minute long distance call was between 15 and 20 dollars in current dollars.   These calls were on an analog network with minimal FDM multiplexing and a great deal of microwave.  However the actual revolution began with the 1968 Carterphone Decision in which telephone users were allowed to connect their own equipment to telephone lines.  That was followed in 1974 when the Department of Justice filed an antitrust lawsuit against AT&T. Then AT&T’s absolute monopoly ended in 1976 when MCI entered the market.   MCI was followed by Sprint who entered the market with a 100 percent digital broadband-based product.   Sprint’s advertisements that you can hear a pin drop immediately challenged the vast AT&T legacy analog system.It was the genius that was Reagan that guided the Justice Department and FCC to complete the transformation of the telephone market into an open, competitive and free market system.  With a free market long distance rates fell from 5 dollars a minute to 5 cents a minute.Finally the court approved the AT&T divestiture which broke up the Bell System, then the largest company in the world.  Before 1974 the highly regulated telephone market had not significantly changed for 50 years.  By the 1980s the private monopoly regulated utility telephone system was gone and the FCC had virtually nothing left to regulate. Still the FCC utility regulatory apparatus exists today.  As President Reagan observed, a government bureaucracy is the closest thing to eternal life.Here is simple proof.  At the end of WW2 limited car phone service became available.  Cost was hideous and access appallingly limited.  In order to expand its monopoly  AT&T submitted a proposal for cellular frequency muplexing  to the FCC in 1971. After eleven years of hearings, the FCC finally approved the frequency management proposal.  When the FCC finally did act Sprint and MCI were prepared to compete in the telephone market.  And, sorry David, the original cellular technology was analog.  Digital came later. It was the competition that took phone use went from a moribund monopoly to a cheap, reliable commodity.As much as I value the research contribution of Bell Labs its motto can truly be said to be;Invented here, developed into a product elsewhere.

  • John in Oregon

    I have had policy differences with Norquist however David Appell’s “facts” are far from disproof of Norquist.

    There is no doubt that a skunk works organization such as Bell Labs opens up new technological understanding.  That Howard Vollum cultured that climate of experimentation within Tektronix was a key factor in its technological dominance. 

    But do the facts support Appell’s contention?  Beginning with Bell Labs.

    In 1929 Bell Labs invented broadband coaxial cable, the first broadband transmission medium.  The technology was quickly adopted by broadcast, short wave radio and the military.  The technology remained fallow within AT&T until the space race pushed government to write tariffs allowing the technology as a product within Bell.

    The first transistor was invented in 1925 when the Canadian patent was issued to Julius Edgar Lilienfeld.  By 1947 Bell Labs found a sufficiently different kind of transistor that was patentable.  During the patent squabbles Raytheon picked up the license to manufacture the junction transistors, releasing the CK722 which spurred semiconductor product development.

    Discovery of the cosmic background.  Working an off books project at Bell Labs Penzias and Wilson in true Ham Radio traditions experimented with a disused Echo 1 satellite receiver originally built to detect radio waves bounced off echo balloon satellites.

    The first transatlantic cable began operations in August of 1858.  During the 1910 – 1930 period Bell Labs developed multiple voice cable technologies such as SSB and analog FDM.  It was not until 1955 that an actual transatlantic telephone cable was installed.

    UNIX and the C programming language.  After Bell Labs canceled the programming development for the company GE645 mainframe computer as a failure, Dennis Ritchie continued an off books project working on a DEC PDP7.

    Norquist however paints an incomplete picture which suggests that, the Reagan administration alone was responsible for the changes at AT&T.  That’s far from true and diminishes the free market arguments that Norquist supports.

    Norquist is correct that under the regulation of the FCC the telephone market remained essentially unchanged from 1934 to 1974.  In 1970 the cost of a three minute long distance call was between 15 and 20 dollars in current dollars.   These calls were on an analog network with minimal FDM multiplexing and a great deal of microwave. 

    However the actual revolution began with the 1968 Carterphone Decision in which telephone users were allowed to connect their own equipment to telephone lines.  That was followed in 1974 when the Department of Justice filed an antitrust lawsuit against AT&T. Then AT&T’s absolute monopoly ended in 1976 when MCI entered the market.   MCI was followed by Sprint who entered the market with a 100 percent digital broadband-based product.   Sprint’s advertisements that you can hear a pin drop immediately challenged the vast AT&T legacy analog system.

    It was the genius that was Reagan that guided the Justice Department and FCC to complete the transformation of the telephone market into an open, competitive and free market system.  With a free market long distance rates fell from 5 dollars a minute to 5 cents a minute.

    Finally the court approved the AT&T divestiture which broke up the Bell System, then the largest company in the world.  Before 1974 the highly regulated telephone market had not significantly changed for 50 years.  By the 1980s the private monopoly regulated utility telephone system was gone and the FCC had virtually nothing left to regulate. Still the FCC utility regulatory apparatus exists today.  As President Reagan observed, a government bureaucracy is the closest thing to eternal life.

    Here is simple proof.  At the end of WW2 limited car phone service became available.  Cost was hideous and access appallingly limited.  In order to expand its monopoly  AT&T submitted a proposal for cellular frequency muplexing  to the FCC in 1971. After eleven years of hearings, the FCC finally approved the frequency management proposal.  When the FCC finally did act Sprint and MCI were prepared to compete in the telephone market. 

    And, sorry David, the original cellular technology was analog.  Digital came later. It was the competition that took phone use went from a moribund monopoly to a cheap, reliable commodity.

    As much as I value the research contribution of Bell Labs, its motto can truly be said to be;
    Invented here, developed into a product elsewhere.

    • 3H

       Digital came later. It was the competition that took phone use went from a moribund monopoly to a cheap, reliable commodity.
      Can I blame Reagan for the fact that I almost get run over in intersections once a week by idiots on their cell phones?

  • David Appell

    The US government gave AT&T a monopoly for another reason — it agreed to provide universal access to the phone network. That was important to the development of the nation in what was then a much more rural country than it is today. It’s by no means clear that a free market would have provided universal coverage so rapidly, and indeed MCI got its start by cherry picking the most lucrative routes, starting with Chicago-St Louis. Even today the free market hasn’t provided universal cellular or Wi-Fi coverage.

Stay Tuned...

Stay up to date with the latest political news and commentary from Oregon Catalyst through daily email updates:

Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.

Twitter Facebook

No Thanks (close this box)