Competition and the AT&T/T-Mobile Merger

The Austrian economist beloved by those who believe in free markets aptly describes competition as a “discovery procedure.”  For Friedrich Hayek, competition is not a static number of market actors or their market share – as though viewed through the eyes of bureaucrats and interest groups who have largely never engaged in business competition. Hayek points out the following (though the whole short work is worth a read):

“…the absurdity of the conventional approach proceeding from a state in which all essential conditions are assumed to be known—a state that theory curiously designates as perfect competition, even though the opportunity for the activity we call competition no longer exists. Indeed, it is assumed that such activity has already performed its function.”

Markets change and adapt, so creating a metric of a perfect market based on today’s completely ignores the active process of identifying changing consumer demands and jostling with competitors to cater to them.

Unfortunately, this is not the mindset with which the Federal Communications Commission and other regulatory bodies approve or deny mergers.  Instead, led by precedent and myopic calls to view competition as the number of market actors and their market share, the FCC is poised to toss away very legitimate examples of true competition in the wireless industry just to either deny or approve with heaps of regulations the merger of AT&T and T-Mobile.

Today, Digital Liberty submitted comments regarding the merger and urging the Commission to focus on the true competitive nature of the wireless industry. For example, not only have wireless prices (for both voice and data) been slashed enormously in recent years (data per megabyte by 46 percent in the last year), but price cuts come during price wars to reduce attrition rates – a prime example of Hayekian competition.

Much of this merger hinges on a recognition that wireless data demand is growing at over 250 percent each year, and AT&T simply does not have enough spectrum or infrastructure to deal with capacity constraints.  As the market is evolving, AT&T and T-Mobile are aiming to leverage economies of scale to increase capacity and meet consumer needs.

Finally, we urged the Commission to avoid placing regulatory conditions on the merged company. There have been a host of regulations proposed by competitors and interest groups, but our opposition boils down to this: any merger-specific regulations pick multiple winners and one loser in the market while setting a precedent for further regulatory action against other carriers. Think Net Neutrality in the 700 MHz spectrum auction.

For Digital Liberty’s full comments, click here for a PDF.