AT&T plan is a wake-up call for regulators
Call it a merger too far.
After years of turning a deaf ear to consumers’ concerns and unblinkingly approving tie-ups among an ever-dwindling number of telecom giants, Uncle Sam has at last awoken to the idea that bigger may not be better when it comes to phone service.
The Justice Department sued Wednesday to block AT&T’s proposed $39-billion acquisition of rival T-Mobile, which would create the nation’s largest phone company with more than 130 million customers.
The agency said the merger would result in higher prices for consumers, fewer choices and lower-quality products.
AT&T, not surprisingly, has a different take on things. The company’s general counsel, Wayne Watts, said the Justice Department fails to recognize the “enormous benefits” the merger would bring. He said AT&T will “vigorously contest this matter in court.”
That’s the company’s right. But the facts are indisputable, and those facts clearly point toward a merger of dubious public merit that would serve primarily to consolidate AT&T’s growing stranglehold over telecom service nationwide.
A marriage of AT&T and T-Mobile would also place renewed pressure on Verizon to similarly beef up, possibly through an acquisition of Sprint, leaving even fewer choices for consumers.
AT&T has argued that acquiring T-Mobile represents the most practical and effective way to expand the company’s wireless network and better serve customers. It says consumers would benefit from increased data speeds and fewer dropped calls.
But that pitch started unraveling recently when AT&T acknowledged to the FCC that it would cost about $3.8 billion to expand its own network to cover 97% of the country.
In other words, the company could achieve the same goals for customers at a fraction of the cost of climbing into bed with T-Mobile.
“It’s clear that AT&T’s main goal in acquiring T-Mobile is to eliminate a competitor from the marketplace,” said Joel Kelsey, a telecom-industry analyst with Free Press, a Washington-based advocacy group. “AT&T is prepared to pay a huge premium to kill off its competition.”
So why is this merger different from all the other telecom mergers that have come down the pike since market deregulation in 1996?
“If this merger goes through, two companies — AT&T and Verizon — would control about 80% of the wireless market,” Kelsey said. “I think that was too much for the Justice Department.”
The AT&T-led Bell system in effect controlled phone service in the U.S. from 1877 to 1984. After Ma Bell was broken up, her smaller progeny insisted they had no intention of re-creating the old network, focusing instead on their own geographic regions.
Gradually, however, it became obvious that the bits and pieces of the Bell network were being reconstituted. The names of the key players kept changing, but the undeniable fact was that they were growing bigger.
In 1998, Ed Whitacre, then chief executive of SBC, addressed wary senators in Washington about his company’s planned $72-billion acquisition of rival Ameritech. He acknowledged concerns that “SBC and Ameritech have set out to turn back the clock and re-create the old AT&T Bell system.”
Don’t worry, Whitacre testified. “The competition genie is out of the bottle,” he said.
SBC went on to purchase AT&T for about $17 billion in 2005 and subsequently assumed the company’s name. In 2006, it acquired BellSouth for $67 billion.
Meanwhile, Bell Atlantic merged with GTE in a $65-billion deal to form Verizon, which in turn acquired MCI for $6.7 billion.
If the competition genie is still out there, he’s keeping a decidedly low profile.
No one begrudges AT&T or any other business from making a buck. But consumers — and, finally, federal officials — want them to do it the old-fashioned way: by earning it.
Crushing your competition through ceaseless mergers may be good for shareholders, but it’s seldom if ever good for customers. It keeps prices high, reduces choice and stifles innovation.
AT&T’s bid for T-Mobile isn’t done yet. But the deal is by no means a foregone conclusion, like previous telecom tie-ups.
That’s progress.
David Lazarus’ column runs Tuesdays and Fridays, and occasionally in between. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com.
