Some time ago, AT&T looked to pick up T-Mobile USA from their German parents Deutsche Telekom. Since then, it has hit a few road bumps. While many observers said it would be approved without a doubt, things are looking quite different. The FCC has decided that the merger is not in the best interest of the public. I’ve found I’m on a different page than many people expect me to be on this issue. I’m very much opposed to the acquisition.
The very title of this blog points to why that’s the case. I’m a conservative who believes in the constitution and capitalism. It’s the last of the three C’s that defines why I’m opposed to this merger.
Part of being a capitalist is understanding economics and how economics works. One thing to keep in mind is what a monopoly is and the problems with one. Anyone who has taken ECON 101 knows that a monopoly exists without competition and, therefore, crushes the benefits we get with competition. We lose the battle for the best product at the lowest price.
When it’s something that’s esoteric or something that people don’t depend on daily, that’s one thing. If someone opened a Russian and Indian restaurant in a town, it would probably be the only one and would have no competition. However, most people have no need or interest in such a restaurant and there are plenty of products they could substitute it with (like cooking at home). Chyron has historically been the only provider of on screen graphics for television production. But how many of us need a device to do that? Not many of us produce live television broadcasts. We can’t really say the same with cell phones since they’re a primary tool for communications for many people. I know when I don’t have my Windows Phone in my pocket, I feel lost.
Now someone reading this right now is probably thinking that it wouldn’t be a monopoly. We would still have Verizon and Sprint. Fair enough. But it does leave us with just one GSM carrier in the US. Even for those that don’t care about the difference between GSM and CDMA, their choices are still limited more than they would be otherwise. If the merger went through, Sprint would become a distant 3rd in the race and it wouldn’t take much for them to be forced out. Well then we’d be down to two choices.
The thing about capitalism is that the more players there are on the field, the more competition there is. Not only does a company have to compete with competitor A and B, they also have to compete with competitor Z. But as we slowly remove players in the market, the less one has to work to get and keep customers. That’s the problem we have in the cell phone industry today.
With only two players in the market, or a duopoly, we near characteristics of a true monopoly. It’s easier for two companies to engage in price fixing than if there was more competition.
Look at the market right now. Most people have to pay for a texting package if they want to send SMS messages. These packages currently cost as follows (for unlimited texts on a single plan):
- $20.00/month on AT&T
- $20.00/month on Verizon
- $10.00/month on T-Mobile
- $10.00/month on Sprint
Now here’s the kicker: it costs the cell phone companies next to nothing to send a text message. These rates are about 99.9% profit. That’s not very competitive or consumer friendly. But then that’s what you get when there’s not much competition.
Right now, a cheeseburger and a small fries at McDonald’s costs about $2. That’s about the same price as a Happy Meal, which comes with a toy. Now imagine if for that toy that probably cost McDonald’s pennies to produce, they charged $8 more for the Happy Meal than the alternative of buying the other parts separately. But they don’t do that because they would lose business to Burger King, Wendy’s, Taco Bell, Chick-Fil-A, Subway, Jimmy John’s, Arby’s, In-N-Out, A&W, Rally’s Chipotle, White Castle, Dairy Queen, Del Taco, KFC, Sonic, and I haven’t even mentioned all the Chinese places out there. That’s the difference when there are a dozen competitors instead of just a few.
And this is just a tip of the iceberg of this issue. There are a lot of ways the industry could be more consumer-friendly but it doesn’t happen because we’re already at a low number of competitors. In fact, it’s less consumer friendly than it was when I first got a cell phone about seven years ago. When I got my first smartphone in 2007 from Verizon, I had the choice of getting a data package or passing on it. Try doing that now. When I first got my cellphone in 2005, my family had a fairly small number of minutes. Since then, nobody offers a family plan with that few of minutes and when they first got rid of that plan, the new lowest amount cost more than what we were paying.
If conservatives are going to sing the praises of capitalism (and there are plenty and this is in no way to take away from them), they can’t be ignorant of potential drawbacks. It’s foolish.
From a Constitutional standpoint, the federal government has grounds for being involved in this issue. Art I Section 8 gives the federal government the role of regulating interstate commerce. Well when I make a call from my home in Michigan to my brother in Alaska, that’s interstate commerce. I’m using a T-Mobile tower in my home town and the call is being routed to a tower in the home state of Sarah Palin. My cell phone and plan also work if I leave the state and wander somewhere else. No matter how you cut it, the cell phone industry is interstate trade. T-Mobile has its headquarters in Washington. AT&T has their headquarters in Texas. Carriers talk about nation-wide coverage and not state-wide coverage. No matter how you cut it, it’s interstate commerce.
History is even on my side of this argument. There was a phone monopoly a number of years ago before cell phones. That monopoly has been broken up and I don’t think anyone’s saying that that was a mistake. What was the name of the company that was broken up again???
So because of the rules of economics and what’s written in our Constitution, this is really the only possible conclusion for conservatives to come to on this issue. Any other conclusion is a betrayal of what we know about economics and the Constitution.
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