Wired for Overregulation

Washington's latest regulatory power grab

Outside the Washington headquarters of the Federal Trade Commission is a sculpture of a powerfully built, shirtless man forcibly restraining an unruly horse. It's called "Man Controlling Trade," and it captures a common attitude in government: Oftentimes, capitalist firms need to be saddled and broken.

That assumption underlies an antitrust suit filed Wednesday by the Justice Department to block a merger between AT&T and T-Mobile. They want to join forces for mutual advantage in their competition with Verizon and other wireless carriers. The Obama administration claims that fewer providers will mean higher rates and worse service.

But the regulators overlook the obvious benefits of the deal. AT&T, unlike the Justice Department, seems to grasp that it will have to compete against the market leader, Verizon, regardless.

It wants T-Mobile for the cellphone towers and wireless spectrum that AT&T needs to overcome the lousy reputation of its network. Besides upgrading performance, it says the merger will allow a $40 billion reduction in costs—which in a functioning market is bound to be passed on sooner or later to consumers.

"Many analysts agree with AT&T's argument that the combination could improve the quality of voice calls as well as data service," reports The Wall Street Journal. That need has become more pressing since the carrier lost its exclusive right to the iPhone.

The lawsuit argues that losing T-Mobile would be a devastating blow to competition. But there are plenty of other, lesser-known cellphone companies, including U.S. Cellular, MetroPCS, and Leap. In fact, 90 percent of Americans can choose from five or more cellphone companies.

The Justice Department scoffs at the importance of these smaller operators because they don't compete nationally as the larger carriers do. It's a strange position that misunderstands the nature of the wireless marketplace.

Joe's Burger Shack doesn't compete with McDonald's nationally, but McDonald's still has to compete with it and thousands of other single-site restaurants across the country. If prices go up under the Golden Arches, patrons have plenty of options besides Burger King.

AT&T faces a similar landscape of small and large rivals. If it loses customers who resent being gouged, it's cold comfort to see them sign up with rivals that don't buy Super Bowl ads.

Just because a small carrier doesn't operate coast-to-coast today doesn't mean it won't tomorrow. If big companies boost their rates, they give upstarts the chance to build their business with alluring discounts. They also encourage the entry of new rivals. The market has its own ways of deterring rip-offs, and those methods are typically faster and surer than federal intervention.

Justice says it particularly wants to keep T-Mobile around because it has been "a disruptive force through low pricing and innovation by competing aggressively." It sounds like a great business formula. But the virtues the government lawyers cherish seem to have less appeal with consumers.

If those are such wonderful attributes, why has T-Mobile been losing customers instead of gaining them for the past year and a half? Maybe many of them prefer the better options that go with the higher rates at Verizon and AT&T.

Besides, it's not as though keeping T-Mobile around is a long-term possibility. Its owner, Deutsche Telekom, has made it clear it wants out of the United States. "This market is going to consolidate one way or another," Sanford C. Bernstein analyst Craig Moffett told The New York Times.

Nor is it true that fewer carriers are bound to mean higher prices. As the Federal Communications Commission noted in its June report on the state of wireless competition, the industry has gotten significantly more concentrated in recent years—but rates for both calls and text messages have declined.

It's a development that should give pause to anyone inclined to meddle in this business. The telecommunications marketplace is a dynamic environment that has repeatedly produced surprises.

Remember when Apple seemed to be doomed to extinction? Remember when people expected AOL-Time Warner to rule the world?

Regulators often act as though companies can claim a big share of a market as though they were cutting a piece of pie. Generally, it's more like trying to fence off a cloud.

In a capitalist economy, corporations may try to position themselves to gain enduring control. But in the end, they always learn that consumers rule.

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