The ATT/T-Mobile merger and spectrum policy

Lynne Kiesling

Alex Tabarrok made some comments on the proposed ATT/T-Mobile merger that reflect my own thinking on the subject: a la Williamson, the benefits of the cost savings from the merger may well exceed the reduction in consumer surplus from any price increase arising from going from 4 national competitors to 3. Alex also observes, correctly, that an open market for spectrum would be likely to be a more efficient way than mergers to achieve spectrum rights reallocation. Because make no mistake about it, this merger is about spectrum rights primarily, and cost savings secondarily.

I would amplify Alex’s observation, though, by adding in a dash of Coase and doing so in the “but for” style of analysis that is often used in antitrust analysis. Alex observes that

What really needs to be done is to auction off as much spectrum as possible with as few restrictions on it use as possible. Let the market allocate spectrum across all uses, allowing value maximizing trades. More spectrum would not only be good in itself it would alleviate any concerns about the merger.

I would go further. But for the unnecessarily bureaucratic government process of spectrum allocation, it may be that such a concentration would never have arisen in the wireless industry. The long-standing lottery-based allocation, combined with the unwillingness to treat initial allocations to military, TV/radio broadcasters, etc. as actual alienable property rights, has stranded spectrum in low-value uses from an economy-wide perspective while giving rights holders every incentive to use lobbying and other political means to protect their low-value allocation, since they have no alternate means of making money off of the rights. Thus the absence of a market for spectrum has reduced the supply and increased spectrum’s relative scarcity. Furthermore, the structure of the spectrum auctions of the past 15 years has contributed to consolidating ownership of the parcels that have been opened.

Poor spectrum policy has contributed to the market concentration that is likely to be the subject of DOJ investigation … but I don’t expect the DOJ to come back with a recommendation that we institute a more intelligent spectrum policy, along the lines that Alex suggests.