There’s a reason why there are more doughnut shops than nationwide wireless carriers.
It’s much cheaper to build and maintain a corner doughnut shop. For one thing, such shops don’t have to serve millions of customers, nationwide, simultaneously, in milliseconds, with no delays. And while I hope my corner doughnut shop spends some money on maintenance, it’s considerably more expensive to maintain and continually upgrade a nationwide communications network.
So there’s lots of doughnut shops but relatively few nationwide communications networks. Not because government decided it should be like that or because some corporate CEO wants it to be like that—but because that’s the economic reality of the business.
Communications is just about the most expensive business to be in. According to the Progressive Policy Institute, in terms of 2018 capital expenditures, four of the top six investors in the U.S. economy were communications networks (AT&T, Verizon, Comcast and Charter). Combined, those four companies spent $54 billion in capital expenditures in 2018. That was the cost of building, expanding, upgrading and maintaining their communications networks.
The next-generation wireless technology, 5G, is going to be revolutionary, but it’s going to cost even more to build out 5G networks from scratch. AT&T and Verizon have reportedly each earmarked $20 billion for their first-stage 5G investment. That’s a lot of doughnuts.
By now you’re beginning to understand why T-Mobile and Sprint decided to merge: to be able to remain competitive in the nationwide wireless space. Without joining forces, T-Mobile and Sprint probably would have found it difficult to make the necessary investments to build out, much less compete, in a 5G wireless world.
But the combined T-Mobile-Sprint will represent a legitimate competitor to AT&T and Verizon. In fact, some analysts think the new T-Mobile-Sprint will be in the best position to build out 5G.
The Justice Department agrees. After an extensive review, the department approved the merger. In addition, in just the last few days, the Federal Communications Commission has also approved the transaction.
But at the last minute, a group of state attorneys general have sued to block the merger. And there’s an odd twist.
Here’s a list of some of the states suing to block the merger: New York, California, Connecticut, Massachusetts, Texas, Oregon and the District of Columbia. See the oddity? Of the states identified, Texas is the only one that is traditionally thought of as Republican.
It’s no surprise that Democratic attorneys general are opposing a merger—Democrats typically oppose similarly aligned mergers. Their governing philosophy assumes that politicians rather than markets are in the best position to determine what a particular industry should look like and how many competitors there should be in a given market. They assume they know more than even the companies who are competing every day in the marketplace.
Republicans, on the other hand, generally claim to believe in markets rather than government bureaucrats. As former Texas congressman Dick Armey used to say: “The market is rational and the government is dumb.”
So why is Texas joining Democratic AGs to block a merger that the Trump administration has already approved? It seems a bit out of character for the state that is supposedly a paradise of limited government and free-markets.
Attorney General Ken Paxton should look at the overwhelmingly positive outcomes that this merger will bring to Texas. The coverage and scope of the new company’s 5G network will bring growth and economic opportunity to every part of Texas—especially rural areas that currently lack access to broadband.
Texas should be leading the fight to increase competition in the wireless space, not acting as a roadblock to the will of the free market.