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

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


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  • identicon
    Anonymous Coward, 14 Mar 2019 @ 6:39am

    State actors enjoy monopoly, news at never

    If anyone is surprised that this state actor has grown too big to succeed, they have only themselves to blame. This company would never exist if our government didn't have unlimited access to their backbone. The price of freedom is a stranglehold on our liberty. It was never worth it and will kill the country before it releases its grip.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 14 Mar 2019 @ 7:04am

      Re: State actors enjoy monopoly, news at never

      "they have only themselves to blame"

      I blame you.

      "stranglehold on our liberty"
      .. that you never had

      "It was never worth it"
      The "worth" determination is interesting study within the field of psychiatry. The pro/con evaluations, the weighted comparisons followed by the tossing all that out the window and winging it.

      reply to this | link to this | view in chronology ]

    • identicon
      Darkhog, 14 Mar 2019 @ 8:13am

      Re: State actors enjoy monopoly, news at never

      Sorry for connecting it to the top post, but I want to point something very important and I hope Techdirt staff will see it (putting it under first comment gives a higher chance of that).

      The thing is that no normal person actually believe that. Do you think some random Joe or Jane believe in such thing? No, they're just sighing saying to themselves "price hikes... again". The reason government is so agreeable is that they're in the pockets of Big Telecom, these companies are one of the biggest campaign donations.

      IMO system of financial support for parties similar to Polish should be implemented (though I have no doubt it won't be for various reasons): Parties that get to the parliament (in US case Congress and Senate) are financed from the national budget according to the total percentage of representatives from each party while other that were unable to break through so to speak have to be financed from fixed payments given by each member of the party. No outside financial support, whether from private citizens or company is permitted.

      We haven't had any major happenings similar to what US telecoms are doing and political corruption ends here in political suicide so it's obvious that way of financing parties is better. On top of that, when Polish telecoms in mid-2000s were trying to introduce bandwidth limit on broadband (ethernet) connections (as in you can download X gb of data until connection slows to a crawl), UKE (rough equivalent of FCC) and UOKiK (government-sanctioned consumer protection office, no idea what if any US equivalent is) quickly stepped in to put end to that.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 14 Mar 2019 @ 10:54am

      Re: State actors enjoy monopoly, news at never

      WTF State Actor? Are there gold frills on your flag?

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 14 Mar 2019 @ 6:44am

    We?

    Uhh, we don't believe these promises, but...

    these megadeals only really benefit investors and executives. For everybody else, they're an expensive shitshow.

    No, they benefit the politicians who decide whether to approve them. Why do you think all those lobbyists are staying at Trump hotels?

    reply to this | link to this | view in chronology ]

    • icon
      Thad (profile), 14 Mar 2019 @ 8:27am

      Re: We?

      ...Trump vocally opposed the AT&T/Time Warner merger, Anon.

      He opposed it ineffectively, and for profoundly stupid reasons (he hates CNN), but to suggest that the AT&T/Time Warner support went through because of its support from the Trump Administration is a little silly.

      reply to this | link to this | view in chronology ]

      • icon
        Thad (profile), 14 Mar 2019 @ 8:50am

        Re: Re: We?

        That last part should have read "to suggest that the AT&T/Time Warner merger went through because of its support from the Trump Administration is a little silly," of course.

        reply to this | link to this | view in chronology ]

      • icon
        PaulT (profile), 14 Mar 2019 @ 8:52am

        Re: Re: We?

        "Trump vocally opposed the AT&T/Time Warner merger"

        He verbally says a lot of things. Sometimes directly contradicting what he said about the same thing hours before, and often contradicting what reality states.

        reply to this | link to this | view in chronology ]

        • icon
          Thad (profile), 14 Mar 2019 @ 9:27am

          Re: Re: Re: We?

          Yes, but in this case the Department of Justice sued to stop the merger.

          Not very effectively, for a variety of reasons (largely because it was hamstrung by the Administration's stance on other issues, like net neutrality and the Disney/Fox merger), but again, it's downright silly to suggest that Trump was in favor of this one.

          reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 14 Mar 2019 @ 9:08am

        Re: Re: We?

        The article title is about Megamergers in general—not just ATT/TW, and Trump isn't the only politician being offered favors to approve them. Those hotel stays are blatent but "donations" happen all the time, on the official record even.

        Who, really, is trusting these promises? Telecom executives and large investors don't need to. There's no reason to assume the words of politicians reflect their beliefs. I'm not aware of many "ordinary" people who'd believe them.

        reply to this | link to this | view in chronology ]

        • icon
          Thad (profile), 14 Mar 2019 @ 9:29am

          Re: Re: Re: We?

          The article title is about Megamergers in general—not just ATT/TW, and Trump isn't the only politician being offered favors to approve them.

          I was responding to an anon who specifically used the phrase "staying at Trump hotels". If you want to have a broader conversation about corporate lobbying, great, but don't act as if I'm the one who brought up Trump.

          reply to this | link to this | view in chronology ]

          • identicon
            Anonymous Coward, 14 Mar 2019 @ 10:11am

            Re: Re: Re: Re: We?

            You didn't bring it up, you're just interpreting it narrowly. It was intended as an example of the way the corporations try to curry favor with all politicians. To rephrase more generally: go look at the "campaign contributions" companies make when they're asking for something. Look at that suspicious way the policitians will go work for those companies after approving the requests.

            Trump's been against a specific merger, but hasn't been consistently in favor of consumer protections and has been involved with some things that at least look like conflicts of interest.

            reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 14 Mar 2019 @ 6:58am

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

    A: I don't

    Many stopped believing the bullshit some time ago, I wonder if anyone cares.

    reply to this | link to this | view in chronology ]

    • icon
      Thad (profile), 14 Mar 2019 @ 9:32am

      Re:

      ...did you seriously just nitpick a headline for using the blanket word "we" and then immediately turn around and use the blanket word "anyone"?

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 14 Mar 2019 @ 10:16am

        Re: Re:

        I don't think that's a nitpick. Who is this magical "we"? Like the previous anon, I don't believe it; Karl doesn't believe it. Do you?

        The problem is not that telcos are fooling us; they're not. It's regulatory capture. We know these things will end badly (for the public), and the people who represent us know it and approve it anyway while lying about their reasons.

        reply to this | link to this | view in chronology ]

        • icon
          Thad (profile), 14 Mar 2019 @ 11:13am

          Re: Re: Re:

          I don't think that's a nitpick. Who is this magical "we"? Like the previous anon, I don't believe it; Karl doesn't believe it. Do you?

          And exactly the same criticism applies to the expression "I wonder if anyone cares."

          If you're going to be a pedant, at least be a consistent one.

          reply to this | link to this | view in chronology ]

  • icon
    Zof (profile), 14 Mar 2019 @ 8:55am

    Excellent story. Well done. I typically just complain all the time so I thought I'd do this for once.

    reply to this | link to this | view in chronology ]

  • identicon
    David, 14 Mar 2019 @ 9:27am

    Merger synergies exist

    Namely whenever we are talking about sizes too small to scale. Outlets with so few people that they have serious shortages when people get sick. Once you reach a certain number of served customers, there just isn't an improved quality of service to be expected from mergers, just a reduced amount of competition. Which allows to fire people and make working conditions and service worse.

    So whatever you get told about mega mergers likely is a lie. Any benefit to the company comes at a cost to the consumer. At mega corporation scale, you cannot provide the same amount of service with less personnel per customer. Research and development personnel costs are a drop in the bucket, and you cannot even significantly save on that since you need to continue supporting the existing infrastructure after a merger.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 14 Mar 2019 @ 10:21am

      Re: Merger synergies exist

      Once you reach a certain number of served customers, there just isn't an improved quality of service to be expected from mergers, just a reduced amount of competition. Which allows to fire people and make working conditions and service worse.

      But that is exactly "synergy". Two companies do a lot of the same stuff, and now they can do it with less duplication i.e. less competition and fewer employees. Don't let the companies put a positive spin on the word. There's synergy, but does it help the public?

      reply to this | link to this | view in chronology ]

      • identicon
        David, 14 Mar 2019 @ 12:38pm

        Re: Re: Merger synergies exist

        Less duplication would be a valid justification. But two service people talking to two customers is the same job description but not duplication. You cannot do the same job with a single person.

        reply to this | link to this | view in chronology ]

  • identicon
    Robert Beckman, 14 Mar 2019 @ 9:39am

    Finally Truth in Merger Advertising

    I wish Techdirt would stop trying to falsify the record. When ATT said

    “because it will enable the merged company to reduce prices, ”

    They were absolutely telling the truth, and any other view is disingenuous. Just because they have no intention of actually doing it doesn’t mean it wasn’t enabled, after all, they fired lots of dead weight while increasing revenue, which they were enabled to pass on to the consumer.

    Just because they were also enabled to line their own pockets and did so doesn’t mean they weren’t enabled to reduce prices.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 14 Mar 2019 @ 10:12am

    why ask why...ask when

    -why do we believe that our presidential vote counts when, in actuality, it's the electoral college that selects the next president-- and the electoral college can vote against the popular (our) vote

    -why do we believe that we're "cutting the cord" when we're still sending the check to the same ISP and/or local cable company that we were before we "cut the cord"

    -why do we believe that our employers actually care about our well being

    -why do we act as if we have absolutely no say in how these corporations act, when we're actually paying their salaries

    -why don't we demand congressional term limits

    -why do democrats, republicans, independents generally agree when it comes to their own pay raises

    -why didn't I use correct punctuation

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Hero, 14 Mar 2019 @ 10:36am

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

    We don't.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 14 Mar 2019 @ 10:41am

      Re:

      Those with the power to approve or deny the merger certainly do. History apparently means nothing in those decisions.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 14 Mar 2019 @ 11:02am

        Re: Re:

        I doubt that, as the companies are doing what politicians do, saying things that they don't believe, but which justify what they want, which for politicians is elected.

        reply to this | link to this | view in chronology ]

  • identicon
    TDR, 14 Mar 2019 @ 11:57am

    Another reason why all mergers and acquisitions should be outlawed. Companies should have to stand or fall completely on their own, and not be allowed to grow to the point where they have any ability to influence government in any way.

    reply to this | link to this | view in chronology ]

  • icon
    ECA (profile), 14 Mar 2019 @ 12:33pm

    Wouldnt..

    Wouldnt the declaration in the beginning and comments that IT WOULDNT happen, be against them, and couldnt we hold that against them...

    Or are the Words of the Representative LOBBYIST, Not a requisite against them?? what ever the Lobbyist said is Crap, no matter if its true or not, he has the RIGHT to lie for his client..

    reply to this | link to this | view in chronology ]

  • icon
    Joseph87 (profile), 14 Mar 2019 @ 10:46pm

    Namely whenever we are talking about sizes too small to scale. Outlets with so few people that they have serious shortages when people get sick. Once you reach a certain number of served customers, there just isn't an improved quality of service to be expected from mergers, just a reduced amount of competition. Which allows to fire people and make working conditions and service worse. kodi

    So whatever you get told about mega mergers likely is a lie. Any benefit to the company comes at a cost to the consumer.

    reply to this | link to this | view in chronology ]

  • icon
    DannyB (profile), 15 Mar 2019 @ 6:05am

    Nobody trusts their promises

    What is trusted is the money they hand politicians under the table.

    reply to this | link to this | view in chronology ]


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