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CNN joins the five-myths club

Posted December 1st, 2011 in antitrust, AT&T, FCC, Government Regulation, T-Mobile USA and tagged , , , by Alton Drew

I guess when it’s time to pile on, it’s easier just to copy cat what’s already out there. CNN appears to be following the line started in a recent Mashable.com article about the alleged five myths surrounding AT&T, Inc.’s proposed takeover of T-Mobile USA. T-Mobile is a subsidiary of Deutsche Telekom.

CNN claims that it’s a myth that prices will not stay the same for T-Mobile’s old customers should the acquisition go through. Guess what? Prices should not stay the same into the future for any wirless provider. Why? Because the demand for wireless services, including voice and data is going up through the roof. Prices will eventually have to increase in order for wireless carriers to provide service.

What AT&T has offered is to take a temporary hit should it obtain T-Mobile’s old customers. By honoring the current T-Mobile pricing plans, AT&T is willing to pay a premium not only to keep T-Mobile’s customers happy, but to obtain a valuable reource–spectrum. AT&T is correct when it says that with greater capacity it should be able to provide services at a lower per unit cost. It is probably another reason the company can eat the lower prices because the acquisition will make it possible.

The truth that CNN does not provide in its piece is that barring some option where AT&T and T-Mobile pursue a joint venture, T-Mobile will likely hand over the $4billion breakup fee to its parent, Deutsche Telekom, and leave town. If that happens, expect to see all carriers jack up rates as they are expected to take on the new subscribers and see their spectrum and other resources come other increased strain.

Regarding job losses, there is a difference between the creation of new jobs and adding jobs to the existing AT&T and T-Mobile labor force. AT&T never promised that every job would not be destroyed. I would expect a company in a competitive market to minimze labor costs. If it didn’t, the inefficiencies from not properly managing labor would eventually leak into prices, giving every grass roots group this side of the Atlantic a reason to complain to the FCC about price gouging.

The tech sector continues to innovate. Programmers are out there building apps for hardware and other services. Technologists are learning everyday how to get one more mega cycle of bandwidth out of the air for use. These are some of the indirect jobs being created.

For the CNN article to characterize AT&T’s decision that it was “highly unlikely” there would be growth beyond 80% of coverage without T-Mobile as a lie is beyond the word, stretch. All business decisions are based on probabilities and contingencies. Should we really accept the FCC’s willingness to trump a going concern’s business judgment because of a lack of definitiveness? Come on, CNN. There is a reason certain costs associated wwith building out are referred to as variable costs.

CNN has also bought off on the FCC’s poor view of competition. In general, a competitive market does not guarantee success. Many a business has entered many a market only to end up in the graveyard of the free market. Besides, CNN should have taken the FCC’s price rise argument to its logical economic conclusion. If prices were to rise, new entrants would come knocking on the door. Whether they knock the door down should be left up to their entrepreneurial capabilities, not the desires of the FCC.

Finally, as AT&T’s economies of scale increases, its marginal cost for serving one additional consumer should approach zero.

CNN should either take a course in microeconomics or be more balanced in its assessment of a business decision.

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