The ATT / T-Mobile Merger Will Kill Mobile Innovation: AKA a Sand Hill Road Sell Out
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I keep hearing there is not a single person in DC that has lost not their senses. Good news. I found one. The head of the Senate Anti Trust committee is coming out swinginn with an attempt to block the merger. Some Details here with an excerpt below:
The Senate's leading Democrat on antitrust issues called on regulators Wednesday to block AT&T's $39 billion bid for rival T-Mobile, saying the merger would lead to less competition and higher prices for consumers.
Sen. Herb Kohl (Wis.), who plans to retire next year, explained his opposition in a detailed seven-page letter sent to Attorney General Eric H. Holder Jr. and Federal Communications Commission Chairman Julius Genachowski. Three House Democrats who sent a letter to regulators Wednesday said the deal would be a “step backward” for consumers but fell short of calling for it to be blocked.
The merger would put 80 percent of all cellphone contracts into the hands of AT&T and Verizon Wireless and remove a lower-cost alternative for consumers, said Kohl, who is among the first lawmakers to ask for the merger to be stopped.
“I have concluded that this acquisition, if permitted to proceed, would likely cause substantial harm to competition and consumers, would be contrary to antitrust law and not in the public interest, and therefore should be blocked by your agencies,” he wrote.
Kohl's stance is unusual. He has called for only three other mergers to be blocked in the past decade.
Since it was announced I've thought the idea of combining these two entities would be bad for competition and innovation and I am happy/surprised that someone is standing up for innovation in DC to try and block this merger. A couple quick thoughts:
- Growing a wireless network is hard. Just ask Phil Falcone of Lightsquared here. It's not just that it's an incredibly capital intensive business, there are huge pro incumbent barriers that allow competitors to slow down your own roll out. Things like delaying orders or making "mistakes" or lobbying local officials to delay your roll out can kill a startup attacking this space. At Omnipoint (now T-Mobile), our team had a hell of a time trying to get the LECs to stop this kind of harassment but the incumbents know how to play the regulations to completely disrupt a network build. A slowed down roll out exacerbates those capital constrains and slows down competition and innovation. That's why I'd caution anyone that a merger that looks great on paper with all sorts of assurances really isn't worth the paper it's written on. This merger shouldn't even be considered.
- The most common defense I've heard is opposing this merger means you don't support the free market. People need to stop suggesting we apply free market principles to markets that are heavily regulated. It's the same kind of logic that brought us the finance debacle and a unsustainable health care system.
- I am a free market guy--- I love the free market, I'm a believer. The idea that you should support this merger on some free market principle requires that the market itself is a free now. Like many industries in the US, the industry structure is a hodge podge of regulations and free markets all mixed in. But the bottom line is these licenses are granted at the discretion of the government and it controls the allocation and supply of these frequencies. Right now we have a four member national oligopoly pure and simple-- not a free market. These entities all follow each others pricing moves quite closely and more importantly work hard to make sure no big shakeups --such as a new market entrant occur.
- I'm not gonna name names (Kleiner and Sequoia) but a lot of heavy hitting VC firms on Sand Hill Road came out with letters supporting this merger based on the idea that if AT&T owns all that spectrum the quality of bandwidth would go up and more rich applications would be available. This is at best and at worst an extremely cynical view. Do you think if 80% of the market is concentrated in TWO PLAYERS hands innovation will go up or down? That's right...it will go down.
- How ironic is it that a Senator in DC can see what bad policy this merger is yet Kleiner and Sequoia are supporting it?
- It's important to note some market history here. The carriers have been historically anti innovation. The carrier perspective is they should be the Itunes/ Operating system and "App Marketplace". When they tried to do this an failed, Apple and Google swooped in to do it for them. The carriers delayed the mobile revolution by a good 5 years or so-- if it wasn't for Apple and Steve Jobs with the IPhone, I think I'd still be on my Palm Treo. Trusting AT&T to open the floodgates of innovation if they could just warehouse a ton more spectrum is literally asking the fox to guard the hen house. It pains me to imagine that firms as reputable as Kleiner would sell out innovation with abstolutely no historical perspective on past market behaviors. Concentrating more market power in the hands of FEWER carriers abandons the idea of free markets and entrepreneurship.
- There is a ton of spectrum out there that is currently being wharehoused. Don't forget companies like Verizon go into wireless auctions just to try and capture extra spectrum not for immediate use, but instead to keep out competition. Remember when Google went into the auction of the very valuable 700 band? Verizon ended up winning just so it could keep Google and others out. At the time, truth be told Google was not super eager to become a carrier but now given all it's investments in fiber optics it could probably make a good go of it now.
- Here is the thing about regulation-- there comes a certain point where those being regulated begging to control so many rules of the game that you'd be better off just leaving it as a completely free market to begin with. If you regulate, it has to be so slight with rules so transparent they are impossible to game by incumbent players. We've lost sight of that not just in Wireless, but in banking, insurance, energy and health care and we are paying for it with a slow growth economy
If you really want to solve the bandwidth problem how about free up unused spectrum that is either not being utilized or is being warehoused from prior auctions. By warehoused I mean, the spectrum carriers like Verizon buy so nobody else can provide some competition. The real answer here is to auction 2 more large national mobile licenses and bring competition back up to a healthy 6+ viable national players. That is the real pro innovation policy stance.
Originally posted here.
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