Why, Exactly, Do We Still Trust Telecom Megamerger 'Synergy' Promises?

Failures

from the expensive-groundhog-day dept

America has a very Charlie Brown and Lucy football approach to its relationship with megamergers, especially in telecom. Time after time, major tech and telecom companies promise consumers and employees the earth, sea, and sky if they’re allowed to become bigger and more powerful. And time after time these promised “synergies,” jobs, and expanded investment promises wind up being empty. In merger after merger (especially in telecom), it’s been made repeatedly clear these megadeals only really benefit investors and executives. For everybody else, they’re an expensive shitshow.

The primary culprit continues to be the country’s waning interest in meaningful antitrust enforcement, Luddite Judges, and the steady lobbyist erosion of antitrust itself. That was proven loudly when the DOJ recently tried to prove the obvious when it challenged AT&T’s $86 billion acquisition of Time Warner. The government repeatedly provided economic models showcasing that the megadeal would immediately result in higher prices for consumers and competitors alike. But a lobbyist-dictated narrowing of what constitutes a competitive threat often leaves government lawyers trapped within narrow corridors of economic theory to prove painfully obvious points.

Ultimately, the DOJ’s arguments were rejected by US District Court Judge Richard Leon, whose ruling (allowing the merger to proceed without a single condition) has been widely ridiculed for missing the forrest for the trees. At no point did Leon’s thinking stumble anywhere near AT&T’s obvious plan to use both its domination of “must have” content (like HBO) and the death of net neutrality synergistically to disadvantage competitors. That’s not a theory; it’s already happening. The DOJ didn’t help its case by failing to mention net neutrality even once on trial or appeal, likely because it didn’t want to highlight how while it was trying to protect consumers (allegedly), the Trump FCC was busy giving them a giant middle finger.

It didn’t take long for AT&T to prove the DOJ’s case, not that it apparently mattered. Before the ink was even dry on the deal, AT&T had jacked up the carriage costs of HBO for competitors, forcing companies like Dish Network to drop the channel after arguing they could no longer afford it. AT&T was also quick to jack up prices for its DirecTV satellite customers, including hikes in a bevy of misleading fees. And this week, word leaked out that AT&T will soon be getting rid of its $40 base plan, and replacing it with two new $50 and $70 plans (read: hike prices):

“Current DIRECTV NOW customers will be able to keep their old packages but with a $10 a month price hike starting on their next bill. According to our sources as long as you stay subscribed, you will be able to keep your current DIRECTV NOW package. If you leave, you may not be able to resubscribe to the old DIRECTV NOW packages.”

While AT&T tries to soften the blow by including HBO in both new tiers, it’s still a price hike. This is technically the second price hike for AT&T’s streaming service in the last year, and the price of AT&T’s cheapest plan has now jumped $15 in just eight months. AT&T had previously sold HBO standalone to these customers for as little as $5, so given the $15 hike in just eight months, you can probably do the math.

This isn’t surprising. And it’s precisely what the DOJ and consumer groups predicted. AT&T saddled itself with so much debt from its 2015 DirecTV and 2018 Time Warner mergers that it’s now forced to raise rates to claw out from under said debt. The problem (for AT&T): as AT&T jacks up prices it’s simply driving more and customers to the exits, making its financial footing even more precarious. Of course, being umbilically tied our intelligence apparatus AT&T’s too big to fail, so actual repercussions for AT&T’s merger mania will be hard to come by. Customers, taxpayers, and employees are the ones footing the bill.

One of the “fun” things about US merger mania is that once a deal is done, few (including journalists) go back to see if the merger promises materialized. In this case, it’s important to point how that AT&T court filings not only laughed off the DOJ’s claims that the deal would raise rates, the company repeatedly proclaimed that the merger would result in lower prices for all as competition flourished:

“The evidence overwhelmingly showed that this merger is likely to enhance competition substantially, because it will enable the merged company to reduce prices, offer innovative video products, and compete more effectively against the increasingly powerful, vertically integrated ‘FAANG’ [Facebook, Apple, Amazon, Netflix, and Google] companies,” AT&T stated in a post-trial brief.

“There is no sound evidence from which the court could fairly conclude that retail pay-TV prices are likely to increase,” AT&T said in the wake of the trial. The Dallas-based telecom giant insisted that “merger efficiencies will begin exerting downward pressure on consumer prices almost immediately” post merger.

Yet here we are. In telecom, the repetition of this same story is borderline purgatorial. American consumers witnessed the exact same problems in the wake of Comcast’s 2011 merger with NBC, and Charter Spectrum’s 2016 merger with Time Warner Cable. And we’re now happily preparing to do the same thing with the merger of two of just four wireless giants: T-Mobile and Sprint. At some point it begins to feel less like reality and more like some purgatorial comedy where we stumble dumbly through the same exact minefields, gleaning little to no wisdom from either experience or history.

Filed Under: competition, mergers, synergy, telcos
Companies: sprint, t-mobile