AT&T Merger Proposal Violates Economics, AT&T History Lacks Fair Dealing


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Telecommunications company AT&T would like to merge with media content provider (and telecom itself) Time Warner. Presidential campaigns have voiced views. Donald Trump says he will not allow such a merger to go through. Hillary Clinton’s campaign is also “skeptical.”

The merger on this scale, just like the Comcast-NBC merger before it, violates the rules of free market economics. In fact, AT&T has a history of contempt for fair dealing.

ECONOMICS

AT&T is arguably the largest telecommunications company already. Combining the largest telecom company with massive content company Time Warner would violate the basic but long forgotten rules of actual free market economics:

  • Vertical Integration. As companies control more of the stream of commerce through production, distribution and retail, companies become less competitive and have more pricing power. AT&T would gain greater control in all three of these areas, and particularly at the production phase which is the specialty of Time Warner.
  • Horizontal integration. Companies that buy other companies offering the same services reduce the number of players in the industry and reduce competition. Time Warner is also a big cable company.
  • Of course, a whole series of first year economic terms come to mind that CATO, Heritage and the mainstream media which is a direct player in these types of transactions like to avoid: take-it-or-leave it contracts (see below), diseconomies of scale, predatory pricing, subsidized services, bundling, oligopoly, price makers, profit maximization, etc.

FAIR DEALING

AT&T has quite a sordid history when it comes to fair dealing.

  • Just this week, AT&T was exposed for charging the government to provide private information of its users — users that include pretty much anyone online or on the phone as AT&T runs equipment used by all retail companies. The operation is called “Project Hemisphere.” Disclosure of this program at The Daily Beast describes it as a “product.” The information that AT&T provides to government may not be used in “any judicial or administrative proceedings unless there is no other available and admissible probative evidence,” according to company documents.
  • The AT&T Project Hemisphere profit operation matches the description of secret government program “parallel construction.” Parallel construction is where the government obtains information one way, then pretends that the information was gathered a different way — a legal or Constitutional way. This program circumvents the 4th, 5th and 6th Amendments in the Bill of Rights.
  • While AT&T CEO and Republican Randall Stephenson has been known to say nice things about social causes like Black Lives Matter — make no mistake — his business views are as conservative pro-large-business and pro-government spying as they come.
  • The last time AT&T bought a company, it took advantage of its ownership by sidestepping net neutrality and offering its own service exempt from data caps. While this is a temporary fix, AT&T continues to actively pursue the end of net neutrality in court.
  • AT&T has been a privacy destroyer for a long time. In 2006, whistleblower Mark Klein described “Room 641a” where AT&T customers and other companies using their equipment were scraping data and passing it to the National Security Agency (NSA).

  • In 2011, AT&T won a lawsuit by a slim 5-4 majority of the Supreme Court. The case permitted AT&T to write up contract provisions that made it harder to be held accountable for “unconscionable” fraud and federalized traditional state contract law. The Justices who supported AT&T were not concerned about “states rights.”
  • Whereas AT&T traditionally funded both parties in fairly equal shares, in recent times, funding has strongly favored Republicans. With the major partisan Supreme Court victory, this should not be surprising.att-merger-economics-fair-dealing-lobbyingAlthough AT&T does not like to be sued when the company commits contract fraud, AT&T and Comcast have no problems suing those who may offer competition to AT&T’s services. The two companies are active in pushing to block Google Fiber.
  • AT&T is an active and powerful member of American Legislative Exchange Council or ALEC. This group is a Koch brothers funded organization that writes model bills for state legislators. ALEC then invites those legislators to join the group and provides funding for their elections. ALEC has singularly written more state laws than anyone else for decades. When the group received bad press for its “climate denial” stance, many companies were pressured to end their memberships. AT&T stayed.

In the 1980’s during the Ronald Reagan administration, the “phone monopoly” of AT&T was broken up. At that time, AT&T was the largest company in the world, holding about 100 billion dollars in assets. To gain perspective on that amount, the second largest company was Exxon with about 40 billion.