DoJ Suit to Stop AT&T Merger Impedes Federalism Also

by Mike Wendy on November 2, 2011

Though the Internet has certainly changed how communications move across state borders, decisions made at the state and local levels play an important role in how both the information superhighway and its numerous off-shoots make it to Americans in the states.

Like the existence of good and plentiful state roads, the delivery of communications to consumers in each locality is integral to the equation that is competitive Federalism – i.e., the “laboratories” of democracy that are the states, and the way they compete among themselves for citizens.

But not if the DoJ has its way.

In its suit to stop AT&T’s merger with T-Mobile, the DoJ has argued that as wireless competition goes, only the top 4 national carriers and their pricing plans matter.  In doing so, it has essentially read out of the competitive maelstrom much that occurs at the local level.  In other words, those smaller, state roads aren’t worth the trouble in their eyes.

Cell tower has local roots

I guess driving the interstate is enough to give one a flavor of the local color?

Yeah, right…

With nearly 1,000 landline communications / cable companies, and approximately 100 facilities-based wireless carriers across the U.S., local consumer choice for communications services abounds.  According to FCC figures, 95% of America has access to at least 1 broadband provider; and 68% have 4 or more wireless broadband options in their local markets.  These numbers, and the technology that delivers those services, improve daily.

Knowing this, industry analyst, Scott Cleland, thinks the DoJ’s assessment is under-inclusive, noting in a recent blog post:

It will be obvious to the court that competition in these local markets must be driven by local market factors that are completely different from “national pricing plans” that the DOJ claims determine the market’s overall competitive dynamics, e.g. the amounts and types of spectrum available, the market’s population density, its legacy wireline footprints and brand, the number of retail locations, among other local market factors.

As I see it, other local market factors that help shape communications markets include:

  • General and specific business laws and regulations;
  • Access to state and local rights-of-way or easements;
  • Local franchise fees and “pay-fors”;
  • Cell tower citing;
  • The taxation of communications services as well as the underlying property used to deliver them;
  • How states designate carriers for federal universal service funds;
  • How states fund their own universal service efforts where they’re available;
  • Municipally-provided communications services, where they’re offered;
  • State consumer protection laws;
  • Provision of 9-11 services for public safety matters;
  • Access to local capital and credit;
  • Access to supporting businesses;
  • The quality of state and local infrastructure; and
  • Geographic limitations, social custom, income levels, age, race, levels of education, availability of a skilled workforce, etc.

These, and a host of others (including intangibles, like “favorable business climate”) all help create local markets. Communications providers come when these factors are attractive.  They stay away when these factors present too much of an obstacle to their profitability.

Utility pole on local rights-of-way with phone, DSL, fiber and cable communications lines

Not surprisingly, many were determined or affected by elected officials, reflecting the will of the people who chose them for office.  These overt policy choices were made not only to protect citizens and businesses, but also to attract them to any given state / locality.

The DoJ knows what it’s doing here.  By reading the real local market out of the competitive equation, it has an easier case to make in working to stop the AT&T merger.  Instead of looking at perhaps 5 or more wireless competitors – or, I might argue, even more on top of that if one were to look at the communications marketplace so as to include other substitutes – it can more easily argue that the movement from 4 to 3 “national” competitors is, well, “bad” for consumers.

As the agency’s actions apply to Federalism, the DoJ acts like any jealous sovereign, seeking to limit the role of the states in serving its citizens.  In doing so, it’s saying: “Washington knows best; the choices made by local officials are meaningless.  Uncle Sam can serve you better.”  In belittling or ignoring local competition, it derides the importance of the states to our constitutional form of government.

No cell tower, spotty wireless service - a choice for local officials to make

I guess this does not surprise me.  The administration of late has noted it will go around Congress in order to “help the economy” if need be.  It seems the DoJ’s actions reflect a similar disregard for our constitutional order, diminishing states’ rights by mooting the 10th Amendment.

To be sure, the top 4 wireless carriers are very popular wireless choices, but they are not the only choices in any given local market.  There is so much more.  Through competitive Federalism, local markets are created, and local constituents served.  They are also attracted.  And in this process, not only are better markets made, but democracy is bettered, too.

There’re 50 different states, giving America thousands of different experiments in self-governance.  Should the DoJ win its suit, Uncle Sam will be yet another step closer toward bleaching those “laboratories” clean of important differences which make our form of government so great and resilient to limits on our liberties.

I might drive I-95 to get into DC, but the little state road off-shoot, VA 235, always leads me home.


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