Editorial Board

Consumers Will Win If AT&T, T-Mobile Deal Is Disconnected: View

Anybody wanting reassurance that the Justice Department acted wisely in opposing AT&T Inc.’s attempted merger with T-Mobile USA Inc. should spend a few minutes comparing mobile-phone rates online.

Right now, U.S. consumers enjoy four main choices for mobile-phone coverage. AT&T and Verizon Wireless are the market leaders, offering the most-prized phones, such as Apple Inc.’s iPhone. Sprint Corp. and T-Mobile, a division of Deutsche Telekom AG, are the smaller players. A fierce battle for customers’ traffic is being fought every day -- and the public is benefiting.

T-Mobile is the constant discounter, offering unlimited texting and voice on smart phones, plus lots of high-speed data, for $79.99 or $89.99 a month. Other carriers’ rates tend to be at least 11 percent higher. Even though T-Mobile doesn’t win every comparison, the boldness of its price-cutting is undeniable.

What would happen if T-Mobile’s independence went away? In its public statements, AT&T has said, in essence: “Don’t worry.” AT&T argues that a merger would promote efficiency and lead to faster network upgrades. Customers needn’t fret about pricing, AT&T adds, because mobile-phone charges have been coming down steadily the past decade.

Actually, there is a lot to worry about. In its seeking to block the merger, the Justice Department argued that combining AT&T and T-Mobile could lead to higher prices, less product variety and poorer-quality services because of reduced incentives to invest. Rather than pressing merely for a few minor changes to the deal, the government wants to block it entirely.

Intense Rivals

As the Justice Department points out, AT&T and T-Mobile are rivals in at least 97 of the top 100 U.S. metropolitan areas. Anyone visiting a mall, picking up a newspaper or surfing the Web can see this competition in action every day. AT&T’s internal memos show that T-Mobile has been regarded as a competitive threat. Such jousting is capitalism at its best.

We aren’t approaching this subject with any populist desire to stymie big companies simply because they are big. There’s no need to return to the 1970s-era suspicion of every merger as a possible restraint of trade. In this case, however, the facts couldn’t be clearer.

The airline industry provides an illustration of what happens as the number of national competitors shrinks. Capacity shrinks. Fares go up. Flying lately has become both more congested and more expensive. In that case, carriers’ brittle finances may have justified an unusually high level of concentration, in the interests of economic survival. The profitable mobile-phone business needs no such indulgence.

Lily Tomlin Skit

Thirty-five years ago, the phone business was largely a regulated monopoly. Planners ruled, market forces were weak and innovation was constricted. Such a system was bound to disappoint consumers in terms of pricing, technological progress and service. The comedian Lily Tomlin won laughs with one skit in which she declared: “We don’t care. We don’t have to. We’re the phone company.”

Investors marked down AT&T’s shares by about 5 percent yesterday, figuring that the company’s prospects would darken if the merger doesn’t go through. That snap judgment may prove wrong. Mobile-phone technology has enormous untapped potential. The best way to realize those possibilities -- for consumers and carriers alike -- is to keep the phone business as competitive as possible.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.

    Before it's here, it's on the Bloomberg Terminal.