AT&T risks Faustian regulator bargain in T-Mobile

June 1, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

AT&T risks a Faustian bargain in clinching its takeover of T-Mobile USA. American watchdogs deciding whether to green-light the $39 billion deal have ample precedents overseas, where greater market concentration hasn’t noticeably harmed consumers. But heavier regulation seems to have made the difference — that may be a price the U.S. mobile industry bears for AT&T’s deal.

On average, the top three mobile operators control over 90 percent of the market in developed countries. In the United States the figure stands at 81 percent — if AT&T nabs T-Mobile that would rise to around 92 percent. Worldly Americans may have noticed, however, that network quality is usually higher overseas. And the total cost is often lower in countries with more intrusive approaches to regulation.

There are several good reasons mobile markets are concentrated. Spectrum is a limited resource, so fewer firms should therefore provide better coverage. The fixed costs of running a nationwide network are huge, so margins are correlated with market share. Bigger companies have the means to deploy next generation services. T-Mobile lacked the financial ability to deploy a next-generation network.

If some of the benefits of AT&T’s merger are plowed back to consumers in the form of lower prices or better service, consumers would arguably be better off. That’s a big if. A reduction in competition also risks lowering market discipline. Heightened regulation may be needed to ensure AT&T doesn’t keep all the spoils – and consumers aren’t harmed.

One way would be to place caps on new spectrum that is put up for sale. Big operators can buy lots of bandwidth and will have the financial means to develop it. But limits on the amounts they can purchase means one or two firms cannot buy up lots and then just sit on it while collecting tolls. That would create opportunity for smaller firms. Such caps are being used in auctions in France and Spain. And they were successfully used in the United States in 1994.

Of course, the idea is anathema to AT&T. But the value of the savings from the proposed merger is more than T-Mobile’s $39 billion cost. With such an incentive, AT&T may be willing to accept a slightly heavier hand from Washington. Too bad for its competitors Sprint and Verizon.

Comments

Most people don’t need LTE . Its a phone for goodness sake. This is just a calculated power grab by AT&T . It’s dishonesty in the reasons its given for this merger are laughable . What European company would let the 2nd and 4th largest wireless providers merge ? What European country only has one national GSM provider ? Most Europeans find our roaming agreements and network strangulation rather incredible from what I understand . We are only going to have two choices when this is finished playing out . What European country only has two choices for wireless providers? This is very easy to figure out . American consumers will lose the ability to price out wireless rates & the government officials will get gifts , donations , and campaign cash at our expense . Oh and Europeans will get to pay more in wireless services when they visit America. You’ll feel our government corruption if you decide to visit .

Posted by Dontseeit | Report as abusive
 

Interesting story!

http://fakesteveballmer.blogspot.com

Posted by steveballmer | Report as abusive
 

Why I may ask? Regulation is known to slow down infrastructure investment. So how will this help the consumer?

Posted by drizzt134 | Report as abusive
 

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