The philosopher Yogi Berra once said that “It’s tough to make predictions, especially about the future.” Let’s apply his lesson to the proposed $39 billion AT&T-T-Mobile merger. The Department of Justice is predicting that the merger, by creating the country’s largest wireless carrier, will reduce competition. Today, the DOJ sued to block the merger.
Competitors are also surprisingly confident in their ability to predict the future. A Sprint spokeswoman said that “Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision … Today’s action will preserve American jobs, strengthen the American economy, and encourage innovation.”
This translates roughly to “We think the merger would make the market more competitive. We were scared that we’d have to work harder to innovate and cut costs to keep our customers happy. Whew.”
Most mergers fail. Nobody knows if a merged AT&T and T-Mobile would offer a better, cheaper product line. The only way to find out is trial and, often, error. The Justice Department’s astounding claim that it knows the merger’s effects in advance is either proof of its superior enlightenment, or else the height of hubris. I’m guessing the latter.
In business, big isn’t necessarily bad. But neither is it always good. What happens if a merged AT&T-T-Mobile becomes a bloated, bureaucratic wreck? This would create a wonderful opportunity for Verizon, Sprint and any number of smaller carriers. Remember, in markets, consumers are always sovereign. At least, they are unless the government steps in. Companies can’t force consumers to buy what they’re selling, absent some help from Washington.
If AT&T-T-Mobile jacks up its prices higher than its customers are willing to pay, those customers don’t have to pay. They can spend their money somewhere else. With Verizon, maybe. Or Sprint. Or a smaller regional carrier. Whoever offers the best deal.
Higher prices and worse service aren’t the only possibilities here. One reason AT&T wants to merge is so it can expand its 4G network. Verizon currently has the biggest and best 4G network, which can run almost as fast as a landline broadband connection. By pooling its resources with T-Mobile, AT&T thinks it can build a better, more competitive network.
How would that hurt consumers?
Which scenario is more likely? Nobody knows. That’s why this writer is agnostic on whether the merger is a good idea or not. Like Yogi Berra, I know that I can’t predict the future. Clearly AT&T and T-Mobile think it would give them a competitive advantage. So does Sprint; companies rarely lobby so hard to stop a competitor from making a mistake. They could both be wrong, though.
Whether the merger results in faster, cheaper mobile service for millions of people, or whether it becomes the next AOL-Time Warner, the companies should be allowed to try. At least it’s their own money that’s on the line. If the Department of Justice’s magic crystal ball got it wrong, they will wrongly deny consumers untold possible benefits. Trustbusters should take Yogi Berra’s advice about humility and withdraw their lawsuit.
Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute.