The Federal Communications Commission (FCC) and the Department of Justice (DOJ) are currently investigating the $39 billion bid for T-Mobile that was put forth by telecom giant AT&T in March. The federal regulators are charged with the task of checking that this merger would not stifle competition in the industry. However, new evidence has recently surfaced that potentially reveals the true motivation behind the purchase and gives the FCC and DOJ reasonable cause to reject the merger.
The average citizen should view this merger as a litmus test for federal regulators, to see if corporate interests trump what is best for the American people. While this may sound a little extreme when discussing just a business acquisition, a merger that will reduce competition in a huge industry like telecommunications will be harmful to both consumers and the state of democratic capitalism in the U.S.
AT&T has been busy convincing Washington that this deal will not only leave the wireless industry a competitive one, but that it is also necessary to provide better service to customers through an expansion of its network. In fact, the key point espoused by AT&T to regulators is that AT&T needs T-Mobile to extend its 4G/LTE high-speed network coverage to 97% of America. However, a recently leaked AT&T document undercuts this highly cited justification for the merger.
On August 12, a partly redacted document was accidently posted on the FCC’s website for a brief period of time. The document, a letter from a law firm working on the merger for AT&T, outlines the corporation’s LTE network strategy. The letter reveals that AT&T estimated it would only cost $3.8 billion to expand the LTE network from 80% to 97% of the U.S. population. Thus, the reality of the situation is that not only is the acquisition of T-Mobile unnecessary for reaching the 97% target, but AT&T is willing to pay a huge premium in attaining the desired expansion through the purchase of T-Mobile. If the essential reason that this merger should go through is cited as the expansion of LTE coverage, then it is strikingly peculiar that AT&T would choose to pursue a course of action that costs them $39 billion instead of $3.8 billion.
Evidently AT&T must have something else in mind for purchasing T-Mobile, and this ulterior motive most likely concerns reducing competition. "That price tag eliminates T-Mobile entirely — and makes Sprint (and by proxy new LTE partner LightSquared and current partner Clearwire) more susceptible to failure in the face of 80% AT&T/ Verizon market domination," writes Karl Bode of DSLReports, explaining the corporation’s willingness to pay such a high premium.
The purchase would effectively create an AT&T and Verizon duopoly, a situation that is antithetical to the protection of competition that the FCC and DOJ are supposedly trying to enforce.
AT&T is putting a lot of effort and money into ensuring that their best interests are represented in Washington. This year alone, AT&T has spent almost $11.7 million in lobbying, making them the third biggest spender this year. AT&T’s Political Action Committee (PAC) is also currently the second largest PAC for the 2012 election cycle. Therefore, AT&T is a very powerful ally to have not only to congressmen who serve on regulatory subcommittees, but also to regulators who may be looking for future lucrative positions through what is known as “the revolving door,” where public officials go on to work for the very companies that once lobbied them.
While it is impossible to definitively state what AT&T’s real motives are in merging with T-Mobile, it is clear from the leaked document that it is not solely what the corporation and their supporters have been telling regulators. The FCC and the DOJ can be valuable institutional safeguards against exploitation of the free market and can curb the continuously growing influence that corporations hold over the democratic process. However, this requires that the regulators do their job and do not fall prey to the same self-interest that drives the corporations they are tasked with regulating.
Photo Credit: JD Hancock