In the USA, AT&T are to merge with T-Mobile. This is considered bad news. And it may well be: T-Mobile are considered the better operator for data, and they introduced the first Android phone.
But then there is this viewpoint:
No, not with conditions. Not with asset disposals. Not with commitments. It must never be allowed. Ever. No way, no how. The absolute bedrock of capitalism is competition. The whole essence of our free market system lies in consumer choice… Take away that choice and the consumer is powerless.
That’s Brett Arends on Market Watch.
If you think you need government regulation to preserve capitalism, I think there is something wrong with your thinking. I suspect something else is going on: could government regulation be causing this merger, indirectly? Why aren’t there dozens of small operators? Probably because regulation makes being a mobile telecoms operator more difficult to do than it should be.
I am quite happy to believe that in a pure free market all sorts of industries will be virtual monopolies. The point is that competition will still exist. Maybe not within the industry but between it and other industries.
We have a really good example in the case of the mainframe industry. In the 1970s dominated. To the best of my knowledge they do today but who cares? The PC has made them virtually irrelevant. And just in case we think that Microsoft is too big for its boots just look at what is happening to it.
Well, the story here approximately is this. A few years ago, when mobile telecoms was seen as an exciting business in which there was money to be made, national telephone companies went about wildly buying mobile phone companies in other countries. One of these companies was Deutsche Telecom, who of course use the brand T-Mobile. They did of course buy mobile networks in both the UK and the US, as well as other places.
However, the mobile phone business has turned into the most boring of utilities, stock prices have slumped and revenue growth has been insipid. However, the business is still very capital intensiv, and another round of investment is necessary soon to build 4G networks. If T-Mobile was to build a 4G network in either Britain or the US, it would need to raise capital somehow. The stockmarket is so anemic that a capital raising is impossible, cash flow is weak so you can’t fund it that way, and a third of Deutsche Telecom is owned by the German government, which would probably veto a capital raising anyway due to deals with the employees in Germany (many of who are legally civil servants). And the German government is not exactly flush with cash, so the German government has told Deutsche Telecom to get out of its foreign ventures and concentrate on Germany.
As nobody else has any interest on buying into the British or US mobile markets via a weak player requiring a major capital injection, what happens is a merger with another player. In the UK that is Orange, and in the US AT&T. AT&T gets customers, spectrum, a compatible enough 2G and 3G network that will relieve their very congested network in New York and San Francisco, and greater economies of scale in building a 4G network. If you are in a business where margins are very thin and revenues are in decline, this is what happens, and is what should happen.
And the one thing I would add to that is that the presence of an undercapitalised, gradually failing company that is not permitted to merge with the other companies in the industry does nobody any good. It just tends to eat up resources that would be better utilised somewhere else.
I would also point out that there actually are a surprising number of smaller mobile companies in the US. (Google for US Cellular, MetroPCS, or Leap Wireless, for instance). The US did not create mobile businesses with national licences as happened in most other places, but auctioned spectrum on a local and regional basis. (The size of the areas over which spectrum was auctioned varied from auction to auction, but none of them were for anything like the whole US). Some of the spectrum was sold to existing telcos, and some to new entrants. The US therefore started out with a huge number of local mobile phone companies, some of which covered only cities or small areas. These merged into larger companies and were acquired, and eventually we ended up with the four national networks we have now (Verizon, AT&T, Sprint, and T-Mobile). However, there are still a quite a few smaller non-national networks in existence. This means that in some areas you can have a choice of five, six, or even seven mobile networks. (I am referring to companies with their own hardware, and specifically excluding MVNOs). This compares with three or four in most European countries. The non-national networks don’t get much publicity, don’t tend to sell fancy handsets, and are not in a very glamorous part of the business. (They sell lots of voice minutes really cheap, basically). They may also have difficulty in present technology transitions, as even their customers are going to be moving to data services and they have not until now spent much money on data networks. However, they exist, and if you are an electrician in Des Moines they provide exactly the service you want.
That “difficulty in present technology transitions” point is what is driving the AT&T / T-Mobile merger, too, basically. People want ever more data for the same cost, a new generation of hardware is necessary to provide this, and capital has become expensive.