An anti-competitive get-together

October 4, 2011 

Washington politics has become as divisive as the UNC-Duke rivalry. But some policy questions are so easy that even UNC and Duke professors can agree.

One policy debate now being batted around in Washington that has an easy answer is whether federal regulators should permit AT&T to purchase T-Mobile. Last month, seven states joined the Obama administration's effort to prevent it. These states, like the administration, concluded that the merger violates the nation's antitrust laws, which ensure that large mergers and acquisitions do not create monopolies or give companies the power to raise prices for consumers.

As professors who devote much of our time to teaching antitrust to North Carolina's future attorneys, we have a particular interest in seeing the proper application of the antitrust laws. And we both agree that the merger would create an entity with monopoly power and should be stopped. This is indeed an easy call, and we urge North Carolina's attorney general to join the effort to stop it.

Consumers throughout North Carolina also have an interest in having the antitrust laws applied correctly. These laws are designed to maintain a competitive, productive and innovative economy. Properly applied, they make sure that successful companies are rewarded for growing their business through what a judge once called "superior skill, foresight, and industry."

A competitive market that rewards fruitful competition brings lower prices and better services and maintains the engine of economic growth. These were the conditions that fostered the Research Triangle's impressive growth of high-tech companies that has meant so much for North Carolina's economy.

But not all corporate growth is good, and the antitrust laws also make sure that companies are not permitted to acquire dominance of a market by colluding or merging with competitors. This kind of growth is the antithesis of "superior skill, foresight, and industry." It is the "if you can't beat 'em, join 'em" strategy. Yet this is the strategy AT&T is pursuing with its attempted acquisition of T-Mobile.

A brief history lesson on the nation's wireless providers illustrates why AT&T's strategy should be stopped. Until 1993, there were only two providers of wireless communications in each region of the United States. Then Congress authorized the FCC to auction off wireless spectrum, which permitted more than a dozen cellular providers to enter the wireless market and compete.

During the years that followed, consumers nationwide enjoyed tremendous improvement in the quality and affordability of wireless services. This experience proved what we all know already: more competitors mean more competition, which means more benefits for consumers and the economy as a whole.

The AT&T - T-Mobile merger would undo much of the competitiveness that the wireless market has enjoyed. Because of a rash of consolidation, the United States now is home to only four major wireless communications providers, and this merger would reduce that to three.

Moreover, two of those three companies (AT&T and Verizon) would together account for more than 72 percent of subscribers and nearly 78 percent of revenues. That sounds like the duopoly that we had in the early 1990s. And because there no longer is a supply of new spectrum, it would be very hard for new companies to enter the market. The duopoly would be unthreatened for years to come.

In short, AT&T is trying to grow the wrong way - the way that brings higher prices, less innovation and fewer benefits to consumers.

The merger would hurt economic growth in other important ways as well. It would leave only one company that uses the Global System for Mobile ("GSM") family of technologies, which means there no longer would be competition to improve that technology. The merger would also eliminate T-Mobile as an independent innovator. It was T-Mobile that launched Androids into the market when the other national carriers were locked into existing handset deals. And earlier this year, T-Mobile announced plans to challenge the leaders in the 4G smartphone market by competing even more aggressively on price and quality. Those plans would be the first casualty of a merger with AT&T.

There is still time for North Carolina to contribute to the effort to stop the merger. We urge Attorney General Roy Cooper to join the suit against the merger and help ensure that the state's consumers of wireless services are protected.

Determining how an acquisition or a merger will affect the larger economy is routinely complicated and often invites vigorous debate. But the proposed AT&T - T-Mobile deal presents an easy case. So easy, even a Tar Heel (or, if you prefer, a Blue Devil) knows it should be stopped.

Professor Andrew Chin teaches antitrust at the UNC Law School. Professor Barak Richman teaches antitrust at Duke Law School.

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