For years, T-Mobile’s chief executive, John Legere, has gleefully bad-mouthed his much larger mobile phone competitors, Verizon Wireless and AT&T, for their high prices and profit margins, and their low-quality service. Decked out in magenta sneakers and T-shirts, sporting long hair like an aging rocker, Mr. Legere promoted T-Mobile and himself to his 6.2 million Twitter followers as renegades — telephonic cool kids.
T-Mobile wooed customers by offering service plans with no long-term commitments, and by paying to free those customers from their old service plans. Rolling your unused data and minutes into the next month? T-Mobile did that, and AT&T and Verizon had no choice but to follow. More recently, T-Mobile vowed to match any discounts offered by competitors.
The fierce competition, and the march of technology, has rapidly reduced the cost of mobile phone service. Since 2009, the average cost of mobile service has fallen by roughly 28 percent, according to the Labor Department’s calculations. In 2017, at the peak of the mobile phone price wars, the Federal Reserve said prices were falling fast enough to meaningfully reduce inflation across the entire American economy.
That’s the beauty of competition. It’s been good for T-Mobile, too. Over the past five years, the company has added more subscribers than its larger rivals.
Now T-Mobile, the nation’s third-largest wireless company, wants to merge with Sprint, the No. 4 wireless carrier in the United States. The combined company would be in the same weight class as the two largest, AT&T and Verizon, with the three companies each controlling roughly a third of the market. Mr. Legere, who scorned the big guys, now wants to be one of them.
The Justice Department’s antitrust division staff has recommended that the federal government go to court to block the merger. That is good advice.
The proposed merger would harm American consumers. It would reduce the choice of service plans, and, over time, it is likely to result in higher prices and less innovation. It would also harm workers in the mobile phone industry, reducing competition for their labor. And it would increase the political power of the combined corporation.
Mobile phone companies are locked in a dogfight for market share. Wherever you look — on television, online, on billboards and stadium signs — the companies are hammering away at one another, making claims about pricing, coverage, network quality and customer service. This competition is miserable for the companies. Their executives and shareholders are frustrated; they wish they were making more money. But the pain of competition delivers benefits for consumers and the economy. Market forces are at work, and they are delivering lower prices and better service.
The government should seek to prolong the industry’s misery.
The four largest mobile phone companies control the vast majority of the market. Thinning the ranks of major competitors from four to three would reduce the competitive pressure to keep cutting prices. T-Mobile has pledged that if the merger is approved, it will charge the same or lower prices for the next three years. But that is tantamount to a confession that prices are headed up eventually.
The price competition among mobile carriers has been driven by a divide between the two smaller carriers and the two larger carriers. The larger companies have higher profit margins because they can spread the cost of a national network across a larger customer base, allowing them to pocket a larger portion of each customer’s monthly payment. T-Mobile and Sprint are under pressure from investors to match those profit margins, and the only way to do that is to get bigger. But if the industry is reduced to three companies of roughly equal size, they will all be able to post similar profit margins, and the pressure to compete for market share will dissipate. What results from this could well resemble the airline industry, where four fat companies dominate the domestic market, largely avoiding the pain of price competition or the pressure to improve service.
There is little realistic prospect that the national mobile phone companies would face new competition. There are small mobile companies, including some with wealthy backers like Comcast, but a new national competitor would need to either build a network of phone towers at vast expense or rent the use of someone else’s infrastructure, a model that has worked in Europe but would require a new approach to regulation in the United States.
T-Mobile argues that the deal will make it a more formidable competitor, able to increase its investment in technology — particularly the costly build-out of a next-generation “5G” network that promises to allow evermore data to move through the ether at high speed.
But T-Mobile can make those investments on its own. Indeed, it may be more likely to do so. There is growing evidence that corporate concentration reduces investment and innovation, by reducing the incentive to stay ahead of competitors. A 2016 study that surveyed a decade of manufacturing mergers found no sign of productivity gains. The International Monetary Fund estimated in April that the increase in corporate concentration since 2000 contributed to a decline in investment that reduced economic output by about 1 percent in the average advanced economy. It warned that continued concentration could increase the impact.
Corporate mergers also are holding down wages. Workers lose leverage when the number of potential employers is reduced. The effect may be greatest for those with specialized skills, but an analysis by the liberal Economic Policy Institute estimated that even workers in mobile phone stores could see a 1 percent to 3 percent decline in their wages.
A key reason for the creation of antitrust laws was the desire to limit the political power of corporations. Mobile phone companies already spend large sums to shape federal and state regulation. AT&T, for example, donated $200,000 last year to the Committee to Protect California Jobs, which campaigned against a California ballot initiative that would have allowed consumers to prevent technology companies from selling some of their personal information. It is not in the public interest to let T-Mobile and Sprint join forces, adding another Goliath to the ranks of tech companies.
The federal government has adopted a permissive attitude toward corporate mergers. Ajit Pai, chairman of the Federal Communications Commission, which also must approve the merger, publicly blessed the deal last month.
As the Justice Department considers its own decision, T-Mobile has spent at least $195,000 at Mr. Trump’s Washington hotel, according to The Washington Post. On the day after the deal was announced last April, Mr. Legere, wearing a T-Mobile sweatshirt, checked into the hotel with eight executives. He has returned repeatedly.
The spending spree is an unseemly but helpful reminder of the ways that companies with deep pockets can seek to influence the Trump administration. The Justice Department needs to demonstrate that it can’t be bought. It needs to block this merger.
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https://www.nytimes.com/2019/06/01/opinion/sunday/t-mobile-sprint-merger-antitrust.html
2019-06-01 18:33:45Z
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