The AT&T Merger Would Have Improved Mobile Service. The DoJ Was Wrong To Kill It.

The intersection of government and technology.
Dec. 21 2011 6:04 PM

Truth, Justice, and Terrible Mobile Service

Why the DoJ was wrong to kill the proposed merger between AT&T and T-Mobile.

AT&T CEO Randall Stephenson (left) and Deutsche Telekom CEO Rene Obermann are sworn in before a House hearing on the proposed merger of the telecom giants
AT&T CEO Randall Stephenson (left) and Deutsche Telekom CEO Rene Obermann are sworn in before a House hearing on the proposed merger of the telecom giants

Photograph by Saul Loeb/AFP/Getty Images.

Thanks to a principled stand by the U.S. Department of Justice and the Federal Communications Commission, my wireless phone service will continue to suck for the foreseeable future.

Will Oremus Will Oremus

Will Oremus is Slate's senior technology writer.

Let’s review: AT&T, the nation’s No. 2 wireless carrier behind Verizon, announced back in March that it was buying its smaller rival, T-Mobile. The $39 billion deal would have made it America’s largest carrier; eliminated the fourth-largest carrier; and left the third-largest, Sprint, in precarious shape. As Annie Lowrey put it in Slate earlier this year, it would have nudged this country’s existing wireless oligopoly closer to a duopoly.

Hoping to secure federal approval for a deal that raised obvious antitrust flags, AT&T splashed $16 million on lobbying and $2 million on campaign contributions. It didn’t work. In September, the DoJ sued to stop the merger, arguing that it "would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services.” This week, AT&T admitted defeat, ending the nine-month fight for approval. Score one for democracy, justice, and the little guy, right?

Democracy, sure. It’s refreshing to see federal agencies make a decision that’s so clearly in opposition to the interests of a megacorporation intent on lobbying its way to fatter profits. The Obama administration’s opposition to this deal serves notice to other big businesses that money can’t buy the Justice Department, which has been criticized in the past for laxity in the face of big mergers. I’ll allow one cheer for that.

Unless the DoJ was also right on the merits, though, it’s hard to get excited about a purely political victory. As for whether this was a win for justice and the little guy—well, it depends what little guy you’re talking about.

The main arguments against the merger were that it would eliminate a viable competitor (T-Mobile), cripple a second viable competitor (Sprint), and result in less choice for consumers. Let’s consider those claims one by one.

Would it have eliminated a competitor? Sure. T-Mobile is one of only four wireless carriers available in every major market in the country, and it often beats its larger rivals on price. The problem is that T-Mobile doesn’t want to be a competitor anymore. Its parent company, Deutsche Telekom, wants out of the U.S. market. There’s good reason for that stance: Of the 33 million customers that the U.S. mobile industry added in the past two years, just 89,000 chose T-Mobile. As much as everyone would like to see a low-cost provider continue to undercut the big two on price, the Department of Justice can’t force T-Mobile to stay in business, and it can’t force people to sign up for its plans.

Would the deal have crippled Sprint, another smaller rival that offers cheaper plans? It’s hard to say. In its suit to block the merger, the DoJ raised concerns that AT&T’s increased market share would allow it to raise prices. But if that were the case, one would think that a lower-cost provider like Sprint would thrive in T-Mobile’s absence.

Clearly, Sprint didn’t envision itself thriving, because it opposed the merger with all its might. If Sprint couldn’t compete, it would be because AT&T’s acquisition of T-Mobile’s infrastructure and spectrum would improve its patchy phone service and molasses-slow data transfer rates in key markets. In fact, that’s exactly what AT&T argued would happen, and why it claimed the deal would be good for mobile-phone users across America.

Which leads us to consumers. Sure, companies like T-Mobile and Sprint can offer cheaper plans, but the success of Verizon and AT&T shows price is not our primary concern when it comes to wireless service. We want shiny smartphones and big, powerful, reliable networks. (Think “Can you hear me now?” and “There’s a map for that.”) Rather than stifle competition, the merger would’ve intensified the war between the two giants, AT&T and Verizon. And for those people for whom price is paramount, there would remain not only Sprint, but a slew of smaller, regional providers like Leap and MetroPCS.

This little guy, for one, has been waiting for years for AT&T to improve its network. I joined because, like so many others, I wanted an iPhone, and AT&T had an exclusive deal with Apple. I stayed because I took the Faustian bargain that almost all U.S. providers force you to accept if you don’t want to pay $600 for a phone: I signed up for a two-year plan. Even worse, I went for a family plan, a brilliantly insidious ploy that requires a family to achieve consensus in order to switch providers.

Thanks to the DoJ and the FCC, I’m now stuck with AT&T’s inferior network until my wireless contract expires. Now, all I can do is hope that AT&T eventually finds some other way to improve its service and build out its new 4G network. At least I have a new excuse when my service cuts out: Sorry, Mom, it’s the Department of Justice’s fault.

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