In the wake of the Department of Justice's lawsuit to stop the merger of AT&T and T-Mobile USA, there has been some discussion about where T-Mobile would end up if the government effort proved successful.
While debate continues whether a merged AT&T-T-Mobile would harm consumers, there is no disputing that T-Mobile itself is mired in business problems. For all the DoJ's concern that T-Mobile remain in the market as a low-priced alternative for consumers, the company is short of the cash necessary to expand infrastructure at a pace to remain technologically competitive. Blocking the AT&T deal would not necessarily keep Deutsche Telekom, T-Mobile's German parent, from seeking other buyers could rescue T-Mobile. Last week, Dave Goldman of CNN Money summed the situation up in "Without AT&T, T-Mobile is a White Elephant." The facts he lays out are among the reasons the merger makes sense.
Yet let's assume for a minute that the DoJ is successful in stopping the merger. A number of pundits both from both the business and the policy side have suggested other potential buyers. Sascha Segan at PC Magazine provided a good summary here.
Segan was just one of many analysts who pointed to Google, Apple and Comcast (or a cable company consortium) as potential T-Mobile buyers. There are numerous reasons as to why these companies might or might not make a bid. Yet what I find interesting the way several critics of the AT&T deal are almost giddy with the idea that one of these companies might jump at T-Mobile, noting that the entry of a deep-pocketed non-carrier might be a good development for the consolidating wireless industry.
That may be true, but such scenarios raise issues of their own. For if the conventional wisdom is that AT&T's acquisition of T-Mobile is anticompetitive, how can any of these of these other merger proposals be justified?
Although it's treated as second nature, the use of antitrust to enforce a competitive status quo, as the DoJ is attempting here, is rather novel and derives more from recent European antitrust policy that U.S. jurisprudence. Together AT&T and T-Mobile would simply combine wireless network assets. Although the Feds often give similar intra-sector mergers in other industries (airlines, retail, media) a long look, in the end, they rarely withhold approval.
On the other hand, U.S. antitrust law historically has tended to frown on vertical integration, especially attempts to control key portions of the supply chain so as to create a monolithic organization that effectively monopolizes manufacturing, supply and all avenues to market.
Hence, movie studios were forced to divest theater chains. Oil and mining trusts were divorced from rail and transportation interests. Even early telecom policy attempted to structurally separate the "wholesale" network from retailing.
Most of the alternative T-Mobile tie-ups raise these supply chain issues. Like it or not, current tech policy demands we apply an "ifs, ands or buts" test to all industry activity. That is, any possibility, no matter how remote, that a merger, partnership, agreement or innovation might lead to unfair market domination must be regarded as an inevitable outcome, and therefore, pre-emptively regulated or blocked.
With this is mind, I offer the following thoughts on three potential suitors for T-Mobile if the AT&T is squelched.
Google is already under the Federal Trade Commission's antitrust microscope because it owns applications that can be bundled with search. In particular, the FTC wants to know if Google is structuring search results to rank its own services higher. Then there's the ongoing debate over the degree to which Google controls the online ad space. Recall the uproar over its purchase of Doubleclick.
So, if DoJ says AT&T and T-Mobile creates an antitrust problem, how could it then sanction T-Mobile's sale to a company that: 1) is the leader in organizing the presentation of information on the Web; 2) Is a de facto gateway to numerous sites and applications; 3) Is the developer and owner of Android, a leading smartphone operating system, and 4) is buying the mobile device business of Motorola?
"If, ands and buts:" Assuming the Google's acquisition of Motorola goes through, adding T-Mobile will create a company that makes a proprietary operating systems for handsets, owns a handset manufacturer, and controls a national mobile network over which its OS and handsets conceivably could be engineered to its advantage (at least you make the case). With T-Mobile's wireless assets, Google could also influence the way its search engine and applications run over the network, locking out T-Mobile customers from other search sites and other apps.
An Apple deal would run into much of the same problems as Google. Apple manufactures a proprietary handset, the iPhone. It also owns the on-line iPhone store, and has come under fire for keeping too close a rein on the distribution third-party applications for the device, as well as for eschewing certain software, such as Adobe Flash. Steve Jobs, its outgoing CEO, is the majority shareowner of Disney, a media and content giant. Apple fails the "ifs, ands and buts" test because ownership of T-Mobile would give it a means to hijack conventional Internet channels to the detriment of other content providers. This could be viewed as unfair competition, even a potential network neutrality violation. Apple would be able to engineer iPhones to wireless network specifications that it would not share with other smartphone makers. As with Google, an Apple-T-Mobile tie-up, if we use current DoJ standards, creates more antitrust problems than AT&T does.
Only the cable companies exceed the phone companies in political unpopularity. Comcast is the leading cable provider in the U.S., owner of NBCUniversal (which was competed despite protest form that same activists trying to block AT&T-T-Mobile), an owner of sports franchises and a sports arena. Already activists complain that Comcast and its brethren aim to use their cable network assets to hobble Netflix, Hulu and other video programming competitors that use their infrastructure to deliver video content.
"Ifs, ands and buts:" You could easily charge that Comcast poses the same threat to any video applications and content that can be delivered wirelessly. Why would it even want to invest in 4G wireless if all this would do was provide more bandwidth for video competitors? How could Comcast be given control of billions of dollars of spectrum and a mobile network alongside an extensive landline fiber network and not use that power threaten competition?
This is more than a snarky exercise. As a supporter of free market solutions, I don't have too many misgivings about any of these scenarios. What concerns me is that the DoJ's intervention in the AT&T-T-Mobile deal carries with it a temptation to direct the market toward an outcome the current more favorable to the current political prejudices. We've already seen administration's overt favoritism in the energy sector.
I'm not saying this is the DoJ's desired aim, but the question hangs there: Given T-Mobile's precarious state--if the government deems AT&T is an unacceptable buyer--who, then, is acceptable? When most other buyers also raise similarly provisional antitrust concerns, rejecting one in favor of another will appear arbitrary and smack of central planning.
Although it may not be popular to say so, shareowners have rights, including the right to sell their stock at the best offer. We've given the government the power to overrule these rights if they deem the sale is in the public interest. That's why the DoJ has to mind the consequences of a blocked sale, for if AT&T-T-Mobile does not serve the public interest, neither, by its own reasoning, do any of the other scenarios outlined above. If it rejects one, it needs to reject the others. Anything else turns its exercise into one of industrial policy rather than protection of the public.