The Department of Justice's suit to block the AT&T - T-Mobile merger can be made to sound complicated (Herfindahl-Hirschman Index anyone?), but it is really a simple matter of the DOJ stepping in to stop the wanton killing (of innovation). And though others may not be able to bring themselves to say it, I will: Thank god for the lawyers!
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| Image Source: nextgadget.com |
So what's a poor $167 billion corporation to do? Kill innovation, of course!
Instead of fixing their own broken innovation engines, some managers prefer an alternate strategy: to try to kill their rivals' ability to innovate. One way they do this is by promulgating "industry standards" as barriers to prevent new competitors from entering their markets. But creating standards requires cooperation (or collusion) and it takes a long time; that's hard work. An easier approach, it seems, is to buy the innovators in your industry and kill their incentive (and their ability) to innovate.
I guess I'm a romantic since I thought that this kind of strategy would be distasteful and repugnant to markets; after all don't we all want to invest our hard-earned capital with companies that actually create value (and in the process, make the world a better place)? But alas, the intended merger is announced and stock prices climb. We've become comfortable with this "buy and let die" approach to competition, while at the same time ignoring the high costs it brings. (Checked your mobile phone bill lately?)
The irony of this case is that people often blame lawyers for a lack of innovation in their firms. "Too expensive, too risk averse, or too much regulation" is the whiny refrain. But here's a clear case where the lawyers are fighting to make these companies become better innovators. I can only hope that they succeed. After all, it should be harder and more expensive to kill the innovations of others than it is to fix your own R&D.
DAO: Industry Contraints
Has blocking the merger really stopped the killing of innovation, or has it just shifted where the innovation will happen? Blocking the merger puts AT&T about 4 years behind on getting an LTE network in place with comparable coverage to what it would have had with the merger.
ReplyDeleteSince they will now have to shift the internal resources towards creating the network, those resources are not available for other forms of innovation. With the large LTE network, the infrastructure would be laid out for a nationwide LTE-based delivery system of subscription TV(think AT&T's Uverse TV which is also delivered via IP). Delivering video over IP is a serious bandwidth hog which may have spurred internal development into a better compression format than H.264.
Of course there is no guarantee any of that would happen, but there is also no guarantee that AT&T would have been any less innovative if the merger did go through.
All regulation is guaranteed to do is to dictate the direction of innovation, it doesn't necessarily kill it off.
I agree that there is real potential for innovation at both companies if the merger goes through. T-Mobile and AT&T serve pretty different markets right now. AT&T -- the first to carry the iPhone -- largely targets the upper tier of customers. T-Mobile, on the other hand, offers a lot of low price subscription plans that make sense for more price conscious customers. Since the wireless market is pretty much saturated at this point, it's up to the carriers to find new ways to create value for their customers. The post-merger 'innovation' may simply come in the form of the ability to offer an expanded range of discounted services to a growing population of price conscious customers.
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