The T-Mobile – AT & T Merger — Why not just require a corporate pre-nup?

The T-Mobile – AT & T Merger — Why not just require a corporate pre-nup?

The Department of Justice (“DOJ”) recently sought to block the merger between AT & T and T-Mobile (“merging entities”). Indeed, many states, including New York, are now on board to stop the merger, too, reports the WSJ in States Join Suit Against AT & T.  The fear: the new entity will have too much market power. This, in turn, will enable to the new entity to raise prices, restrict output, and/or reduce the quality of service.  Rather than block the merger, the DOJ should permit it and require the corporate couple to have pre-nuptual agreement, which is something most but not all couples, including Russel Brand and Katy Perry, pictured below, now have.

In their Answer to the DOJ’s complaint, the merging entities claim that their merger will improve the quality of services they provide by, among other things, increasing the bandwidth — or decreasing the “spectrum shortage” — in the marketplace so as to cause less dropped calls. The Answer cites FCC Chairman Genachowski as saying that this “spectrum shortage” is a threat to the economy as more and more burdens are placed on the cellular highway. In short, the merging entities are telling the proverbial Rabbi — or Priest — that is the DOJ: we will be a good corporate couple, good corporate parents, and will foster a family of products that will cause pro-competitive benefits.

Instead of vetoing the marriage, the DOJ should allow it but require the merging entities to sign onto a proverbial corporate pre-nuptual agreement. The agreement would require the merged entity to report on a quarterly basis to the DOJ concerning the pricing and quality of its products compared to others in the marketplace. Such reports are often required by courts who issue injunctions. The agreement should also require the merged entity to achieve certain benchmarks which would determine whether the pro-competitive vows of the merged entities, as more fully set forth in their Answer, have been met. If not, the agreement would provide for the dissolution of the merged company. It seems that this is a better way to handle the merger than to outlaw it due to knee jerk fears which, in the end, may be unfounded.

Too big to fail, too small to succeed.

Too big to fail, too small to succeed.

Peter J. Wallison, a scholar at the American Enterprise Institute, wrote Dodd-Frank’s Threat to Financial Stability, in which he argues that the Financial Stability Oversight Council (“FSOC”) ruins the competitive landscape by picking those companies that are too big too fail. In so doing, the FSOC also picks those that are too small to succeed. Adam Smith would also not likely approve.

Under Mr. Smith’s theory, a highly competitive marketplace is more or less atomistic — small players with no monopoly power compete against one another. The FSOC ruins this picture. By picking certain companies that are too big to fail, the government is essentially underwriting some businesses over others. To make matters worse, these businesses likely already had market power in the first place. The FSOC only increases this power. As Mr. Wallison points out in his article, this gives unfair competitive advantage to those companies who receive the government’s blessing. And those that are too small to succeed? Well, the FSOC is apparently not to concerned with those companies. The marketplace can afford to lose them, in the FSOC’s view. At the same time, such companies are often the lead innovators because they are quicker to respond to marketplace currents. What is more, small businesses are the largest employer in the country, employing 53% of the American workforce. But even if such companies were objectively worthless, which they are not, is it the proper place of the government to pick winners and losers? Mr. Smith would likely say no. Leave that to the marketplace, not elected officials.