Friday, May 4, 2012

Whining All the Way to the Bank

            AT&T Chairman and Chief Executive Randall Stephenson complained yesterday that the FCC’s failure to approve AT&T’s acquisition of T-Mobile has resulted in a 30% data rate increase.  He implies that AT&T would not have raised prices if it had sufficient spectrum like that available by acquiring T-Mobile.  See http://topics.wsj.com/person/s/randall-stephenson/504.

             Does this pass your smell test?  Whatever happened to charging what the market would bear?  Mr. Stephenson is no doubt smarting from his failed strategy to drive out a competitor and
“rationalize” the wireless marketplace so that the survivors (eventually AT&T and Verizon controlling over 90% of the market) could raise rates even higher.  I should note that he lost many millions in a salary reduction and lost bonuses.

            So it comes as no surprise that Mr. Stephenson would resort to voodoo economics and fuzzy math.  A fair and realistic assessment of the wireless marketplace should start with considering whether there is a real scarcity in spectrum and not something that the carriers could manage if they conscientiously used compression and other spectrum conservation techniques.  Additionally we should appreciate that the T-Mobile acquisition would not have increased the aggregate amount of available spectrum, just that available to AT&T.  As well we should know that AT&T and Verizon have yet to activate spectrum they acquired for over $16 billion when the FCC made UHF television bandwidth available in the conversion from analog to digital television.   Just now Mr. Stephenson whines about a spectrum scarcity even as companies like Clear, Sprint and T-Mobile cannot exploit their access to such a scarce commodity. If these companies fail, it will show how regulatory policies have ruined the benefits of facilities-based competition in exchange for supporting scale and “too big to fail” megacarriers.

            Mr. Stephenson appears to want to reframe economic principles to support the premise that an industry consolidation would better serve consumers than the current marketplace comprised of four major carriers.  By analogy Mr. Stephenson’s logic would support further airline consolidation which empirically has resulted in higher rates, more crowded planes, less competition, declining use of large aircraft and reduced service to many localities.   So just how does industry consolidation or “rationalization” help consumers?  

            This is all about reducing consumer surplus, such as unmetered service, low rates and declining average revenue per user and raising carrier profits.  Mr. Stephenson takes us for fools.

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