Antitrust

The Spectrum Specter

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Wrath = felt.

Critics of AT&T's proposed acquisition of smaller wireless carrier T-Mobile have pointed to inadvertently revealed documents indicating that AT&T could build out its next generation network for a little less than $4 billion. Yet AT&T is willing to spend $39 billion buying out a rival. Does this prove that AT&T is simply trying to get rid of a competitor, and willing to pay a premium to do so?

Not necessarily. That's because the best way to understand the merger is as a play for scarce wireless spectrum; that's where the real premium is. Wireless spectrum is the raw material necessary for wireless, and there's not enough of it available to meet the massive rise in consumer demand. This isn't controversial. Even the current Federal Communications Commission has declared that "the amount of mobile data demanded by American consumers is likely to exceed capacity of our wireless networks in the near-term." As Jerry Brito of the Mercatus Center noted last year, "spectrum is barely traded in a market. Its uses are largely mandated by government fiat." So essentially the only way for AT&T to get access to large amounts of additional spectrum, spectrum it's clearly going to need at some point in the future in order to continue expanding its offerings, is to purchase a competitor. Given the lack of alternatives, then, the costly merger may be worth it. 

And what happens to T-Mobile, and its spectrum, if the Department of Justice successfully blocks the merger? One possibility is that T-Mobile, which is already shedding its relatively small customer base, continues to lose subscribers, and lets its spectrum go unused. Via the wireless market geeks at CNET:

Technological INNOVATION!!!!

In contrast to AT&T, T-Mobile is nowhere near exhausting its current spectrum with its existing services. Its network has plenty of capacity to serve its shrinking subscribership.

Instead, the problem T-Mobile faces is that it needs additional bands of spectrum to migrate its customer base to the next generation of technology, 4G LTE. The Advanced Wireless Spectrum or AWS spectrum that T-Mobile bought in 2006 was used to build its 3G wireless network. If T-Mobile wants to build a 4G network, it will need additional spectrum to do it. And even though the government is talking about re-auctioning spectrum from TV broadcasters, it could be years before those auctions take place.

So T-Mobile would be left holding spectrum, but without a viable expansion strategy, and thus unable to improve service to its dwindling customer base. And at some point, AT&T and its customers would be stuck waiting for the federal government to free up additional spectrum for the market, and hoping that if it ever does, there aren't too many rules attached to how it can be used. And yet the DOJ is worried that if the merger goes through, consumers might suffer

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  1. Hey can you guys ban me from the entire site so I can stop reading it completely? That would save me a lot of time.

    My IP is 209.***.***.212

  2. Not necessarily. That’s because the best way to understand the merger is as a play for scarce wireless spectrum; that’s where the real premium is.

    Thank You!

  3. I have TMobile for my personal phone and AT&T for my work phone. TMobile has superior voice quality, superior coverage, fewer dropped calls (none), and lower prices than AT&T.

    But I don’t understand why the “Justice” Department should get to interfere in a business decision between the two companies. If the TMobile board of directors likes the deal being offered, and the AT&T board of directors are willing to pay the price, who am I, or Barack Obama, to say otherwise?

    The worst reason I’ve seen to block the merger is to save jobs, as if employing more people than necessary in an industry is somehow a good thing. Even progressives are conflicted on that reason, since AT&T workers are unionized and TMobile workers aren’t.

    1. But I don’t understand why the “Justice” Department should get to interfere in a business decision between the two companies.

      Its for the children, CE.

    2. I seriously doubt AT&T’s wireless employees are unionized. Verizon’s aren’t and VZW never went through the spinoff-sale-repurchase ridiculousness Cingular / ATTW did.

      1. And, it should be mentioned, VZ’s unions are stronger and they service a more pro-union area than AT&T (the BA legacy area is as blue as it gets and GTE’s local area mostly consisted of coastl CA, OR, and WA).

      2. Uh, didn’t Verizon just settle a labor dispute with its union last week?

        1. Actually, the strikers returned to work without a contract. Negotiations continue.

          Returning to work without a contract is pretty much unconditional surrender for a union.

  4. No one has ever drawn The Spectre well, ever.

    1. You take that back. Or the ghost of Jim Aparo will come and kill you by using sorcery to turn you into a Hit & Run comment that will be gruesomely delted.

    2. er, deleted.

  5. But, what will happen to Catherine Zeta-Jones? Who is thinking of Catherine Zeta-Jones?

    1. She’ll be enslaved by some much older actor.

      1. If you go watch Romancing the Stone, he’s not old,Kathleen Turner still looks good, and Danny DeVito looks exactly the same. Can’t we return to such simpler times?

          1. “They told you I had a car? They are such comedians. They meant my little mule: Pepe.”

            1. Dammit man, the Doobie Brothers broke up! Shit! When did that happen?

            2. Is that a DeVito line? Haven’t seen that movie, but it certainly sounds like DeVito, and I hear his voice saying it in my head. Kind of like those images of Professor Farnsworth with the caption:

              Good news, everyone! I’ve just created a device that makes you read this in your head, in my voice!

              1. My God, it works.

  6. Why does everyone want AT&T to buy T-Mobile? I don’t get it…

    AT&T has coveted spectrum in the 700 mhz block, which excels at building penetration. Furthermore, AT&T could eventually phase out it’s 3G operations, and just go straight LTE in a few years. That would more than enough capacity to cover their subscribers.

    As far as T-Mobile, yes, they have limited spectrum, but nothing is stopping them from partnering up with Clear or even Dish Network to build out there own LTE network. Both of those companies need capital, which T-Mobile will be flush with if this deal falls apart.

    Despite all this talk about data, what the DOJ is focusing on this: If T-Mobile is taken out of the game, then MaBell is essentially back in existence. Customers would only three national carriers to choose from, and Sprint would probably evaporate if this happened. A few years from now, customers would have a limited selection of phones/plans to chose from the duopoly of Verizon and AT&T&T.

    1. You clearly don’t get it. No one wants AT&T to buy or not buy T-Mobile. We want the government to stop meddling in a perfectly viable and legal business deal between two companies.

      1. The ideology must be served regardless of the consequences?

        Thou hast a stout heart, but it shall not save thee.

        1. How many government intrusions get billed as “necessary exceptions” to that archaic lasseiz-faire dogma?

    2. Funny. Other analyses said this would be good for Sprint, especially if TMobile just goes out of business, which seems likely at this point.

    3. Hear, hear! Stop the madness!!

      Monopolies limit consumers’ choice and stifle competition. In some extreme cases, people are forced to buy their products against their will.

      1. No monopoly sucks more than a government monopoly.

  7. And yet the DOJ is worried that if the merger goes through, consumers might suffer.

    If consumers are suffering because of corporate action, it’s unconscionable. If consumers are suffering because of government action, it’s for the common good.

  8. Why is there always so much spooge on the floor of these threads?

    1. Turn off the phone bitch puddin.

  9. Why is it that the lefties are so quick to hand government a monopoly on a platter, but when two companies this size look into merging it’s “anti-competitive”?

    1. Because government always has everyone’s best interest in mind. Always.

    2. Government is noble and good and “profits” by taking money by force, and corporations are horrible and evil and want profits from serving customers, or from getting the government to hand them a monopoly or make stifling regulations.

      See?

      1. It must just irk lefties that all those millions murdered by governments during the last century can’t be blamed on “corporations.”

        1. I think they try to find roundabout ways to do it anyways.

        2. I think they try to find roundabout ways to do it anyways.

    3. So basically the entire pro-merger argument boils down to a tu quoque.

      1. Hypocrisy is icing on the cake for the anti-anti-merger argument.

  10. Why does everyone want AT&T to buy T-Mobile?

    I suspect nobody on this board really cares (unless they own stock in one or the other).*

    What matters is that AT&T and T-Mobile want AT&T to buy T-Mobile.

    As libertarians, I suppose we are in principle in favor of any voluntary transaction.

    1. Any current T-Mobile customer should care, because they’re about to get ATTfucked.

      I’m reluctant to endorse govt interference with honest business transactions, but you have to admit that cellphone service is a good that naturally lends itself to market power, like roads and electricity delivery. Adam Smith’s bakery analysis doesn’t really apply.

      1. I beg to differ; cell phone service is not like roads and electricity. We already have four national and several regional carriers. It’s more like car insurance or AAA coverage. Consumers benefit from network effects.

        P.s., I keep responding to you because you actually seem quite reasonable in your arguments, even if we disagree.

  11. Would the new company be called A,T,T&T-Mobile?

    1. I prefer T & AT&T.

      1. “Fuck you, I’m texting!”

  12. Yet Broadband Report claims “AT&T … has fewer customers and more spectrum than Verizon (or any other company for that matter)”. And that’s the trouble: we are left with conflicting claims of bandwidth scarcity or plenty without any basis on either side. What’s more, if you look at the CNET article supposedly bolstering the Reason article above, you find the following interesting paragraph:

    But what the agency failed to recognize in its analysis of the deal is that T-Mobile has two big problems that will make it almost impossible to remain an independent competitor: It lacks a 4G strategy and it has no spectrum to develop one.

    So, great, AT&T is buying a company that has no spectrum for 4G for its spectrum? This is now cloud-cuckoo land. I still see nothing in Suderman’s piece that is inconsistent with the original premise of the DoJ’s suit, i.e. that AT&T wants to buy T-Mobile for the express and only purpose of shutting down competition. (Whether this is a legitimate function of government is, of course, another discussion entirely.)

    1. …and no one has a response for this.

      It’s easier to pin the tail on leftie hypocrisy and quote the ideology than to address substantive issues, it seems.

      1. New here?

  13. From a libertarian perspective, isn’t one of the few government functions to prevent or break-up monopolies? The better situation here, would be many carriers, and spectrum that’s easy to divide, buy and sell, like building lots.

    1. From a libertarian perspective, monopolies can only exist due to government interference. Both the government trying to block AT&T’s purchase of T-Mobile and the artificial scarcity of the wireless spectrum are examples of the government causing harm to the market. If these artificial barriers to entry were removed then there would likely be much more competition and innovation.

      1. How exactly do you propose ending the artificial scarcity of the wireless spectrum?

        1. How about natural property law. The same principles of land ownership can also be applied to air space, waterways, underground, and even radio spectrum.

          1. I notice you left out IP.

            If you can “own” a frequency, the arguments against IP pretty much fall to pieces.

            1. You can own the use of a frequency over a certain area, if the previous owner concedes ownership to you, or if the frequency in that area has not been used for a significant amount of time. If someone else interferes with use of that frequency, other than perhaps within their own three dimensional area of property (like a house, or workplace) it is trespassing. Where is intellectual property involved in that definition of frequency ownership?

              1. So you’re just making it up as you go along when it comes to property rights, just like Locke before you did with land ownership.

                The fact that you can imagine a system for governing a supposed property right doesn’t mean it’s legit. For a utilitarian that’s less of a problem but for natural rights folks it’s a big mozzaball.

                1. So, what legitimizes property ownership to you? Utilitarian “fairness”?

                  1. It’s a system that contributes to prosperity everywhere it’s been respected (speaking of land property).

            2. That’s non-sequitur. A portion of spectrum can only be used by one signal (and therefore one signal originator) in any given physical area. An idea can be held by everyone without anyone’s understanding of it being diluted. Enforcement of IP is a claim on someone else’s property.

    2. Even if there were only one cellular telephone company in existence, how exactly would this be a monopoly? Is there absolutely no alternatives to purchasing cellular telephone service? No other possible ways of surviving and communicating unless you have a cell phone?

      1. There are no other means of long-to-medium-distance, either-way-initiated communication with people at randomly selected sites in a wide area.

        The existence of substitutes for a product does not mean there isn’t a monopoly on that product. Just because I can run a generator in my back yard doesn’t mean the electric company doesn’t have a monopoly.

        1. “There are no other means of long-to-medium-distance, either-way-initiated communication with people at randomly selected sites in a wide area.”

          Past generations called, they say hike up your skirt and grow a pair. Tissues on isle 3.

  14. Meh.. the libertarian part of my brain is crying foul but as a t-mob custie I’m rejoicing.

    In other news, the solar company to which the big O gave $500 million in loan guarantees went bust.

  15. Not just spectrum, Antenna sites. NIMBYism at its best.

    1. DUH, that was the whole point of yesterday’s post on the same story. Doh!

      1. Which Mr McMillin responded to in the thread thereof with the article Suderman attempts to rebut here.

        ATT could have built enough towers to achieve their 97% LTE coverage goals for about $4B according to their own estimates, so it’s kind of strange that they want to spend ten times that much just to accomplish the same goal.

        1. 1) Spectrum is still spectrum. I wrote about the issue here: http://thekev.in/2011/08/rural…..icy-goals/
          The tyranny of the FCC over commercial radio use is awful. Amateur radio operators and international shortwave broadcasters have been self-coordinating for decades, and the only legal framework needed is redress of interference.

          2) AT&T and T-Mobile use the same technology, so AT&T can fold in T-Mo’s customers much more easily, and having more customers is valuable. You call it eliminating competition, I call it buying access to a customer base. It happens all the time, only not so prominently.

  16. So… why can’t AT&T just buy part of Verizon’s spectrum that isn’t being used?

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