The Justice Department is going to court to stop the proposed merger of AT&T and T-Mobile USA. Will the pending union of Google and Motorola suffer the same fate?
At first glance, the two mergers appear to have little in common. AT&T and T-Mobile are in the same business, while Google and Motorola occupy different niches in the telecommunications ecosystem. But AT&T and Google share a common problem: Both are victims of bungled government regulation, and both need merger partners to sustain competitive momentum in the face of federal roadblocks. Indeed, it's unlikely that either would have risked such intense antitrust scrutiny if the government had been doing its job properly.
Justice apparently believes that the AT&T/T-Mobile merger would inevitably mean less competition -- and therefore higher prices and lower quality -- in the wireless carrier market. We're skeptical. For one thing, it's far from clear that T-Mobile is viable any longer on its own. Deutsche Telekom, the carrier's parent, is reportedly unwilling to make the huge investment T-Mobile needs to keep up with rivals. For another, carrier concentration varies from locality to locality, and some judicious divestiture of customers and spectrum would make a big difference'which, one hopes, is all that the Justice Department is really after.
Consider, though, that the reason AT&T was prepared to fight the uphill battle to obtain T-Mobile was its need for spectrum to meet the exploding demand for broadband service in very competitive markets, including New York and San Francisco. In a better world (one in which more spectrum could be auctioned off and freely traded), AT&T could have acquired what it needed without a merger with the one major carrier that meets AT&T's needs. Yet the Federal Communications Commission is dancing a painfully slow minuet with television broadcasters, hoping to induce them to part with the excess spectrum they control (but are not allowed to sell) with a combination of threats and promises of cash.
Google, for its part, faces a very different government-manufactured obstacle. The giant's Android operating system, which is licensed to a dozen equipment makers world-wide, is a runaway success. But, thanks to a government patent and copyright system that is ill-equipped to navigate the modern and complex issues of carving out rights in software, Google faces as-yet-unknown challenges to ownership of the intellectual property that makes Android tick. The company reportedly is willing to pay a large fortune for Motorola only because it would bring along thousands of patents that could be used to defend Android from predators. Indeed, major wireless-device makers including Sony, Samsung, LG and HTC are supporting the merger despite the fact that it would raise the spectre of favoritism for Motorola, because they fear that Android would otherwise be hobbled by patent trolls and other attackers.
There's one last irony here. The controversies over both mergers are largely based on concepts of antitrust that are as obsolete in a high tech environment as the government rules for allocating spectrum and parsing intellectual property. In the AT&T case, the worry is that a higher concentration in the market would give the company the discretion to raise prices. With Google, the unease is that the owner of the Android operating system would reserve the newest features for Motorola handsets.
In a world of breakneck technological change, though, the far greater concern for the feds and everyone else must be that micromanaging markets will slow innovation. And it is hard to think of an industry that has delivered more value more rapidly than wireless communications -- or one in which the potential for innovation is greater.
While it is fashionable these days to view regulation as the enemy of growth and innovation, reality is more subtle. What's needed is not less government, but nimbler government. One that understands when and how regulation can make markets more competitive -- and when it makes sense just to get out of the way.
Mr. Hahn is director of economics at the Smith School, Oxford, and a senior fellow at the Georgetown Center for Business and Public Policy. Mr. Passell is a senior fellow at the Milken Institute. They are co-founders of Regulation2point0.org, a web portal on regulatory policy.
