When an economic downturn hits, one of the first concerns of policymakers should be getting business investment back on track. Investment always takes a beating when the economy sours (see the chart below, recession periods in grey), so supporting private investment should become a top priority.
Deutsche Telekom, T-Mobile’s parent, is a terrific company. But it has made it clear that it cannot allocate the necessary capital to develop next generation wireless networks in the United States. It has to concentrate on the European market.
DT management has said that T-Mobile must self-fund any future network development, without the help of the mother firm. The problem here, as an examination of its financial filings shows, is T-Mobile’s position in the American market has been deteriorating even as the overall wireless sector has been quite strong. T-Mobile lacks the capital position and potential for future cash flows needed to build out the advanced networks American customers are demanding.
As the Financial Times recently put it, DT’s management needed to “solv[e] Deutsche Telekom’s festering U.S. problem, a mobile unit too small to keep up with the investments needed to attract customers as mobile internet use soars.”
AT&T on the other hand has pledged to make an enormous investment to build on the T-Mobile assets it is aiming to acquire. And it has the capital and cash flows to make good on that pledge.
This state of affairs makes the Obama administration’s hostility to the deal seem utterly bizarre. The administration is kicking the shins of a telecom firm pledging huge investments in the United States. And it wants to keep alive a “festering problem” in the form of a capital-depleted telecom subsidiary incapable of making serious investment expenditures. Look at the chart above and ask yourself if this is good policy.
Last month I noted how often the Obama administration has elected tostand in the way of private investment. The FCC’s move just before Thanksgiving to oppose the telecom merger is of a piece with earlier administration steps.
Noting this hostility to private investment is hardly a partisan or ideological point. Late this summer one of the finest macroeconomists in the country, Michael Mandel of the Progressive Policy Institute, put matters bluntly:
“Here’s a summary,” Mandel said, “of current U.S. policy towards big corporations: Invest in the U.S., create jobs, and get sued by the government.” Suing firms that invest and build in the United States is rarely a good idea; during a time of economic stagnation it’s practically unconscionable.
The Obama administration opposes the merger on two grounds. It says the deal will make the telecom sector uncompetitive and that it will cost jobs. Both claims are wrong.
The technical model the administration uses to assess competitiveness (called the HHI) is badly flawed. This model says the pre-merger industry is worryingly uncompetitive. If wireless were uncompetitive today, we’d see a stagnant industry with rising prices. Instead we see the opposite: ample dynamism and falling prices.
As for jobs, the labor union that has the most at stake in this deal supportsthe merger. Why would a union support a deal that was going to cost its members jobs? The union knows the investment will boost growth in the sector and lead to more jobs in the long run and it wants to be a part of that.
The administration has long been dogged by accusations that it is anti-business, a charge it has vehemently denied. And often those charges were unfair. But when a huge private investment deal is blocked on flimsy grounds, a deal the administration’s union allies vigorously support, don’t be surprised if critics wonder once again if this administration is hostile to private enterprise.