Douglas Hotlz-Eakin files comment on AT&T/T-Mobile Meger

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Douglas Hotlz-Eakin files comment on AT&T/T-Mobile Meger Powered By Docstoc
					May 10, 2011

Marlene H. Dortch
Federal Communications Commission
445 12th Street, SW
Washington, DC 20554

Re: WT Docket No. 11-65 (AT&T/T-Mobile Transaction)

Dear Ms. Dortch:

I write to urge the FCC to recognize the important public policy and technological implications
of the proposed merger between T-Mobile and AT&T. I anticipate that volumes will be written
about this transaction, but I would like to focus on three basic points: 1) monopoly power is
clearly against the public interest, but this merger would not generate an AT&T a monopoly, 2)
the size of the company is irrelevant; competition should be the sole factor in analyzing this
transaction, and 3) rushing to regulate and dictating outcomes to AT&T can only harm the
wireless market.

If this merger is approved by the FCC and the Federal Trade Commission, no monopoly will
dominate the telecommunications market. T-Mobile was hardly the only competitor and AT&T
still must compete with its main national rival, Verizon.

In fact, using the Herfindahl-Hirschman Index (HII) several scholars have already calculated that
AT&T’s market share would likely fall well below the threshold for a full-blown monopoly.
The FCC should focus on the actual state of competition, not misleading language about
monopolies and consumer choice. An empirical approach toward prices and costs, the profit
rate, and barriers to entry can help remove some of the rhetorical clutter and instead focus on
actual outcomes.

Finally, regulations and mandates that attempt to dictate a particular outcome will likely produce
unintended consequences, distort markets, and fail to benefit the consumers that the FCC seeks
to protect. Avoiding onerous burdens can help to produce the kind of competition that
incentivizes investment and innovation, something everyone agrees will benefit consumers.

Thank you for taking the time to review my comments. I have included a recent op-ed that
summarizes my views on the merger. If I can be of any further assistance in this matter, please
do not hesitate to contact me directly.


Douglas Holtz-Eakin
American Action Forum
                                                                              Douglas Holtz-Eakin
                                                                                  March 21, 2011

                                        Does Size Matter?

The announced acquisition of T-Mobile by AT&T has started the predictable drumbeat about
whether federal regulators (the Federal Communications Commission and the Justice
Department) should let such a “large” firm emerge. The proposed acquisition is an important
moment for the development of broadband in the United States, for competition policy more
generally, and for the prospects for growth overall. So I am watching with interest how this
plays out.

Monopolies are bad and the exploitation of monopoly power is against the public interest. So the
first question is whether this is a monopoly. Clearly not, as T-Mobile was far from the only
competitor to AT&T. Instead, this is now one large(er) firm competing with multiple other firms
(notably Verizon). The situation is more complex and the policy response important.

The first thing to note is that already we are seeing calls for a presumptive regulatory response –
perhaps as strong as barring the purchase. This is reminiscent of other policy debates in recent
years – financial services, health care, and carbon come to mind. In each case, there was an
enunciated policy goal – ensure adequate risk-management, lower the cost of health care and
insurance, and alter the energy portfolio of the United States. And in each case, the path chosen
was riddled with regulation and mandates that attempt to dictate the outcome.

The alternative approach would be to harness competition to meet policy goals. Financial firms
competing for scarce investor capital and customers will have natural incentives to manage their
risk-return tradeoffs as long as regulations don’t embody the moral hazards of too-big-too-fail.
Similarly, competition among insurers and providers would be a boon to the American family
and small business facing higher premiums. And finally, if one wants to re-shape the energy
portfolio, nothing will work quicker that dumping the legions of ineffective subsidies and
intrusive regulations, and letting a simple price signal trigger competition.

The same is true in wireless broadband. Strong competition will provide the incentives for
innovation, investment, and customer pricing that everyone agrees are the desirable future of this
critical sectors. So why the reflexive rush to additional regulation?

Size doesn’t really matter in any of these areas; competition does.

I expect that some will argue that regulations are needed to ensure competition. But that ignores
the other strong traditional tool of competition policy: anti-trust reviews. That is, check on the
actual state of market completion – the nearness of prices to costs, the profit rate, barriers to
entry, and so forth. The FCC has long been on the wrong page on this front, preferring ex ante,
prescriptive regulation to checking for the quality of actual competition (most notably with its
repeatedly misguided attempts on network neutrality). But under both parties, the Justice
Department seems as well to have accepted the notion that the only goal is to write the regulatory
rules. It used to be the case that even conservatives understood the need for strong market
competition and the desirability of ensuring that it takes place.
So, at least for me, the AT&T purchase of T-Mobile is another way to see whether the U.S. will
continue down an overly-regulatory, prescriptive approach to competition that is doomed to fail.
Or, will it instead permit firms to price, innovate, merge, and even close as they see fit, with the
policy makers checking on the actual state of market competition and imposing remedies only
when it is found to be inadequate.

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