AT&T; and T-Mobile Deal: An Editorial Review

Mar 22, 2011, 07:43 by David Hope

AT&T; plans to buy T-Mobile - and on Monday, the headline was global news. The deal that gave Wall Street a boost Monday though is likely to face intense scrutiny from U.S. regulators charged with protecting the public from mega-monoliths.

There are signs the size of billboards that AT&T;'s purchase of T-Mobile USA would create at best limited gains for consumers, including the point that the $39 billion deal would decrease competition in a high-tech telecommunications industry that thrives on innovation.

Newspapers across the country are walking readers through the standard "Who loses in a merger" stories, as the deal would leave U.S. consumers with AT&T;, Verizon and Sprint as the last major phone service providers standing. In that scenario, Sprint is left as the littlest of the coast-to-coasters with a mere 50 million customers, compared to about 100 million for Verizon and 130 million for AT&T.;

Consumers need smaller companies scratching their way up by offering low prices. Consumers also need the smaller, flexible firms to commit to innovative technology, forcing the larger corporations to adapt or be caught from behind.

While scooping up a rival, however, AT&T; said the cost savings on the deal were substantial with "straightforward synergies � of more than $3 billion, three years after closing onward."

"The value of the synergies is expected to exceed the purchase price of $39 billion," AT&T; said.

On one hand, spending $39 billion and saving $40 billion in the process is a compelling argument for a merger. Somewhere, taking a broad view of things, there is considerable redundancy in having two companies replicate each other so closely. Corporations are designed to seek a profit and the elegant solution is to allow for a merger and trim the inefficiencies.

But the only benefits to the public occur when savings are passed down to consumers. It is also hard to see displacing workers as much of a boon with U.S. unemployment at 8.9 percent. Certainly, it doesn't help the government much if most of the savings come from firing workers, many of whom will apply for unemployment benefits, in stark contrast to pre-merger when these workers were earning their keep and paying federal income tax.

AT&T; did not say how many would lose their jobs in the deal, but began their spin doctoring Sunday, pulling out the patriotism card as the deal was announced.

"This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation's future," AT&T; Chairman and Chief Executive Officer Randall Stephenson said.

"This helps achieve the Federal Communications Commission and President Obama's goals to connect every part of America to the digital age," the statement said.

Of course, changing services and extending services are two things connected only on paper, not out in the field. Pointedly, regulators such as the FCC that will review the deal will overlook the rhetoric, especially when omissions of a statement outweigh the obvious.

In international markets Tuesday, the Nikkei 225 index rose 4.36 percent while the Shanghai composite index in China added 0.34 percent. The Hang Seng index in Hong Kong gained 0.76 percent while the Sensex in India gained 0.84 percent.

In Australia, the S&P;/ASX 200 was flat, rising 0.01 percent.

In midday trading in Europe, the FTSE 100 index dropped 0.22 percent while the DAX 40 in Germany fell 0.11 percent. The CAC 40 in France rose 0.17 percent while the Stoxx Europe 600 rose 0.04 percent.

Source: UPI