AT&T’s proposed $39 billion acquisition of T-Mobile would result in new efficiencies and economies of scale. It would enable the provisioning of more and better services at lower cost than the two companies could achieve separately.
And that’s exactly why the Obama administration may block it.
After eight years of the Bush administration, which was one of the most lenient in history regarding huge mergers, and two years of the Obama administration during which time big mergers have been approved because of circumstances not present in this case, we find ourselves forgetting that the government can and does block these kinds of things.
Don’t get me wrong — AT&T has a lot of points in its favor. (Full disclosure: My wife works for a division of AT&T.)
AT&T is one of the world’s largest campaign contributors and deep-pocket lobbyists. The company had 93 lobbyists and spent $15.4 million on lobbying last year alone. AT&T is a politically powerful company with a lot of friends in Washington.
Also: The company is very good at convincing regulators to approve its mergers. And this one is no exception. AT&T is already planning to offer up huge chunks of its subscriber base for divestiture to placate skeptical regulators and generally do whatever it takes to get this thing approved. They know any final deal will be the product of intense negotiations, and they’re ready to negotiate.
Why the Deal May Be Denied
Wall Street and others analyzing the proposed merger are looking at traditional issues like competition and pricing. The merger would bring together the number one and number three carriers. Note that only four major carriers really matter in this calculation.
Competition is preserved in a non-monopoly market because it enables companies to put pricing pressure on each other. What’s relevant in this merger is that AT&T would be acquiring (i.e. eliminating from the market) the lowest-priced carrier – the one applying the most pricing pressure on the other three.
The government will also scrutinize consumer cost-benefit, and a host of other issues related to anti-trust and market issues. But let’s be clear: There is no way to separate the politics from the decision-making process.
I don’t care what the FCC’s and the DOJ’s mandates are, I can assure you that the Obama administration will consider this merger’s impact on jobs — the one issue that will largely determine whether the president gets re-elected or not. AT&T predicted that it will take the government up to full year to make their decision. By this time next year, the 2012 presidential campaign will be fully under way.
The AT&T-Mobile merger is projected to save the companies $3 billions per year. As in all mergers, such savings come in the form of new efficiencies. And the word efficiency is just another way to say more services provided by using fewer employees and less equipment. Less equipment means fewer employees employed by the companies that make that equipment.
Normally, efficiency is good. Efficiency is the engine of a competitive economy. Efficiency is good for growth, which is normally good for incumbents in Washington. But in a jobless recovery, just before a make-or-break election where the number-one issue is jobs, efficiency is not going to be very popular.
AT&T employs about 294,600, and T-Mobile about 36,000 for a combined total of about 330,600 employees. If merger efficiencies result in the loss of, say, just 10% of the newly combined workforce, we’re looking at the loss of some 33,000 jobs at AT&T-Mobile alone. Efficiencies in equipment and external services mean fewer employees needed at companies that build towers and telecom equipment. Most of these layoffs or non-hires would take place before the election, affecting employment numbers. (Please note that I’m making these numbers up. Nobody knows how the merger might actually affect jobs. In general, however, most mergers significantly reduce combined headcounts.)
Speaking of jobs: It’s useful to remember that both the FCC and DOJ are headed by Obama appointees that will lose their jobs if Obama is not re-elected. Also remember that when Obama was a candidate, he promised to “reinvigorate antitrust enforcement,” a promise he has yet to realize. Denying the AT&T acquisition of T-Mobile would enable him to check off this accomplishment as a promise fulfilled.
Instead of asking “Why would the Obama administration block a merger that reduces both competition and jobs right before a make-or-break election year,” instead ask: “Why wouldn’t they?”
So iPhone fans: Don’t count your HSPA+ eggs before they hatch. This whole thing could be denied.
80 responses to “Why the FCC May Block AT&T-Mobile”
i bumped my knee getting out of the car this morning, i think its Obama’s fault. He also went fishing and caused the earthquake in Japan.. MAN, this guy has caused us alot of problems… everything was PERFECT before he was in office… smh.
Amen!
If you are going to hate Obama, have a valid reason instead of making pointless comments.
and you are sadly mistaken to believe that everything was PERFECT before he was in office…quite the contrary. He has made strides towards making things easier and productive in our future. If it does not translate that way for you, then you should take a closer look.
at&t – synonymous with Ma’Bell. Thumbs down.
Maybe we should block the Obama “administration” instead.
@Voice of Reason, it appears sarcasm is not your friend, just read the second sentence again
Strange that several comments thus far interpreted this post as anti-Obama. Obama is a politician. Politicians get elected by making decisions that enable them to get re-elected. Any other president would also consider the effect of something like this on jobs during an election year where jobs are the main thing that make or break a campaign.
This post is neither pro- nor anti-Obama.
clearly, someones been doing the herbal.
prices are not set by cost of goods. cogs is of second or no importance in a capitalist marketplace, where prices are overwhelmingly decided by supply and demand. in this case, the supply is one less while demand is equal.
furthermore, us telecomm co’s are (foolishly) permitted to own their own supply chain. by that i mean satellites, cable, wireless, backbone network systems, network access points, bandwith/frequency, subdivide it into parcels (packets), market and sell it to the general public without a middle person in any tier. its a freacking A-Z bi’ness.
you can bet this will have no good outcome for customers.
or, you support this move merely for political reasons.
This article was neither pro, nor anti-Obama. I’m very sensitive to political bias, and this article was thought out pretty well. I can totally see the DOJ and FCC blocking this so that unemployment numbers don’t rise during the election. That makes perfect sense to me.
lol
didn’t read the article, but your wrong!!!!!!!!!!!!!!
/s
lol
I think the graphic is awesome.
He must’ve funded your education. It’s “you’re”.
People often forget that non-English speakers DO post. I say they get the point across. How many Americans speak multiple languages, much less write in another language?
Lest we forget what happened when AT&T swallowed up Cingular Wireless. The all told us that it would be good for the consumer. THEY LIED. Prices went up. Way up.
.
AT&T has always owned Cingular
They were smart by bringing up the prices. “We’re going go to have the most popular phone in the world soon, so let’s bring up the prices to make some more money.” Any sensible company would’ve done the same. Heck, I definitely would’ve done so, and I’m sure you would’ve as well.
Amen to that!
Mike– unfortunately, you need to check your facts. The Obama FCC just approved the biggest merger in media history (Comcast/NBC), the Obama DOJ approved the Ticketmaster merger. The last time the FCC voted down a communications merger was under the Bush Administration (DIrect TV/Dish). Go fact check that.
Let’s see, it was the Clinton FCC that allowed NYNEX to merge with Bell Atlantic and then buy GTE –to become Verizon. The Clinton FCC allowed SBC to buy Pacific Bell and then buy Ameritech. That new SBC became a mega company that then merged with BellSouth and bought Att under the Bush administration. So be careful with your characterization of who was the “most lenient in history”.
Michael Honez!
You ARE right!
Yes, Comcast/NBC and Ticketmaster/Live Nation are the mergers I was referring to when I wrote: “…two years of the Obama administration during which time big mergers have been approved because of circumstances not present in this case….”
In both those cases, the companies involved were not direct competitors. This is different.
Yes, that Clinton also approved a lot of mergers makes my case even stronger (my case that everyone has apparently forgotten how aggressively the FCC and DOJ can act in the blocking of mergers).
I think there’s a perfect storm of factors here that could lead to a rejection of this proposal.
Ma’Bell attempt to reassemble as a wireless company???
that’s funny.
i said it. everyone understood it.
hey! even YOU understood it, but your right.
by the way, I wish Obama funded me, i’d be rich.
hell, i’d take Dick Cheney’s money too.
o, and guess you’re sarcasm detector is broken like you’re sense of humor:-)
The use of Obama’s image (and the cheap shot ‘shopped poster) is disingenuous, not useful to the point of this article, and borders on offensive.
Actually, I think the offensive image is the one with the “Hope” under it…
I hope it doesn’t get approved. I think having just one nationwide GSM carrier is going a bit too far…. and that’s coming from a Verizon customer. Not that it really matters…..
“It would enable the provisioning of more and better services at lower cost than the two companies could achieve separately.”
Absent a sufficiently competitive market, there is nothing in economic theory or the real world that guarantees any such efficiencies or cost savings will flow through to the consumer. Just because costs are lower doesn’t imply that prices will then be lower.
If anyone thinks two majors and one rump is sufficient to provide enough competition in the mobile phone market, I respectfully direct your attention to Cable TV.
Well it does matter. You think only AT&T prices will rise if this merger goes through?
Oh-bah-mah ad-mini-strat-ion will not block Ay-Tea-En-Tea-Moh-bile
Well I’m sure not the smartest person when it comes to how things are priced
in the cell phone industry, but I don’t see why prices would go UP on other
carriers. If anything, I’d think they’d go down. Verizon is pretty
competitive. They like being number one. So I’d think they’d lower some of
their prices, or hold off on tiered data so they can combat AT&T.
The far left is going to fight this with everything they have. After going to war with Libya, Obama is going to have throw a bone to the kooks. I predict it will denied. Obama’s big labor cronies, his rogue DOJ, and his leftist ideology are never gonna let this happen. But hey, I use Verizon anyway.
Right, because hope and positivity is the last thing we need.
BAHAHAHAHAHA!!!!!!!!!!!!!! YES I AGREE!!! What flippin “hope!?”
AT&T is the place to be if you’re into marketing. Here’s why:
I ran some numbers on AT&T based on SEC 10-K filings some time back and found that AT&T spent more in marketing than it did on network. The metric is called CCPU or Cash Cost Per User. (Per USER, not hundreds of users…) How did I conclude that they spent more on marketing you ask? Well, I called to pay a bill… Then, while on hold, an announcement said “We’re spending $x per month on network upgrades..”
So having this number, I could figure the percentages. Indeed, marketing percentages were higher than engineering budgeting, and it was an on-hold marketing message that let me know. Clever stuff.
In comparison, T-Mobile invested in it’s network for quite some time. In fact, when I did the same exercise for T-Mobile US, they spent about as much in Engineering for 30M customers as AT&T spends on it’s 90M customers.
This is why people like T-Mobile. They build stuff while AT&T acquires stuff.
It’s “you’re.” Quotation marks come AFTER the punctuation. Who funded
YOUR education?
@Zack. I realize that —obamahater— was being sarcastic, but if you are going to make a comment, make sure it’s relavant to the story. Like —Mike— above mentioned, this story is not anti-Obama, so why even use a sarcastic comment at all? Say something meaningful.
And you should say something meaningful as well—Zack—, instead of worrying about my comments.
dumb article and image used is disrespectful and distasteful. And what does it really have to do with Mac/Apple?
Absolutely excellent point Michael. I was a Cingular customer for years; dependable service, great customer service and affordable plans. ALL of which disappeared after the merger in ’06. Of course experiences with any carrier may vary from customer to customer, but mine was great. Emphasis on “was”.
Cingular was owned by SBC and BellSouth, SBC Acquired AT&T and swallowed it, renaming itself AT&T. Then it ate BellSouth. So in effect Cingular ate AT&T.
I think they should block it on the grounds that there isn’t enough competition and AT&T needs to spend more of their money on engineering and improving their network and not on buying other companies and making things less competitive.