Making the Right Call on AT&T and T-Mobile

Diane Katz /

Federal Communications Commission Logo

No sooner did AT&T announce on Sunday its proposed acquisition of T-Mobile than analysts began handicapping whether federal regulators will approve the deal.

The $39 billion fusion of the second- and fourth-largest providers of U.S wireless service (by revenue) is sure to trigger lots of hand-wringing at the Federal Communications Commission (FCC). But the agency’s penchant for regulatory excess has harmed consumers in the past, and Congress ought to constrain it from doing so in this case.

Under current law, the commission must approve all transfers of radio spectrum licenses and telecommunications operating certificates. Consequently, it does have a regulatory role in mergers and acquisitions. But commissioners and their staffs have routinely abused their regulatory discretion by exploiting license reviews to promote pet causes. And while license transfers are rarely rejected outright, the FCC frequently imposes onerous conditions, including divestiture, service restrictions, and mandates.

As it is, the proposed acquisition will be thoroughly reviewed by antitrust authorities at either the Federal Trade Commission or the U.S. Justice Department. A tortuous investigation by the FCC would thus be redundant and unwarranted.

AT&T officials obviously anticipate a fight; they are predicting that the regulatory juggernaut will extend some 12 months. But a year can be an eternity in the telecommunications market, in which innovation continuously transforms competitive dynamics.

They also expect that AT&T will be required to divest “substantial” parts of its wireless subscriber base to appease regulators. But to the extent that approval requires the surrender of assets, the company will have that much less to invest in upgrading and expanding its network.

The principal issue is whether the T-Mobile purchase will undermine competition. That has certainly not been the case with major telecom mergers in the past decade. Indeed, the overall average price for wireless services (adjusted for inflation) declined by a whopping 50 percent between 1999 and 2009, a period in which five wireless mergers took place.

The vast majority of American consumers enjoy multiple choices among wireless services. It is particularly important that antitrust officials undertake a “granular” evaluation of regional markets—rather than simply totaling up numbers nationwide—to gauge the true extent of competition. The competitive landscape can differ dramatically among various regions.

The government’s review should also recognize the potential benefits of the merger rather than fixate only on the “big is bad” doctrine. The merger can be expected to produce broadband efficiencies at a time when spectrum is in very short supply. Broadband applications have exploded, of course, as has spectrum-hogging video. But FCC mismanagement is also a major factor—proof positive that the agency is hardly qualified to micromanage the industry.

Having long exercised considerable power—albeit unauthorized—over mergers and acquisitions, the FCC isn’t likely to curb its regulatory impulses on its own. But with regulatory costs at an all-time high, the economy and consumers can hardly afford higher telecom prices courtesy of an overactive FCC. Voters in the last election made it plain that they want governmental restraint. It’s long past time that restraint was imposed on the commission.