Big Macs Are Not iPhones

Blog ››› ››› SIMON MALOY

With the Justice Department's motion to block the AT&T/T-Mobile merger a few days behind us, politicians and media types are slowly declaring their allegiances in what is promising to be the biggest antitrust fight we've seen in a good long while. Chicago Tribune columnist Steve Chapman inked an editorial this weekend denouncing Justice for moving to stop the merger, and took a stab at debunking DOJ's primary reason for blocking the deal: its anticompetitive effects.

According to Chapman, the situation facing the wireless communications market is no different than that of the burger-slinging set:

The lawsuit argues that losing T-Mobile would be a devastating blow to competition. But there are plenty of other, lesser-known cellphone companies, including U.S. Cellular, MetroPCS and Leap. In fact, 90 percent of Americans can choose from five or more cellphone companies.

The Justice Department scoffs at the importance of these smaller operators because they don't compete nationally as the larger carriers do. It's a strange position that misunderstands the nature of the wireless marketplace.

Joe's Burger Shack doesn't compete with McDonald's nationally, but McDonald's still has to compete with it and thousands of other single-site restaurants across the country. If prices go up under the Golden Arches, patrons have plenty of options besides Burger King.

AT&T faces a similar landscape of small and large rivals. If it loses customers who resent being gouged, it's cold comfort to see them sign up with rivals that don't buy Super Bowl ads.

The similarities between the competitive landscapes facing AT&T and McDonald's are actually quite few.

Chapman is right that competition in the fast food industry is fierce. Aside from Burger King, McDonald's competes against Wendy's, Jack-In-The-Box, White Castle, Hardee's, Carl's Jr., and several other national and regional burger chains. They also have to contend with non-burger-centric national fast food purveyors like Subway, Arby's, KFC, Taco Bell, Pizza Hut, and so on. So while McDonald's is the leading fast food chain -- according to Techmonic they controlled just under 50 percent of the fast food burger market in 2010 -- the preponderance of national and local competitors means they're getting it from all sides at all times.

AT&T is not, at least not to the same degree. The wireless market in the U.S. is already highly concentrated, and as concentration has increased over the past decade the decline in wireless prices has essentially flatlined. Right now, AT&T has three national competitors: Verizon, Sprint, and T-Mobile. If they buy T-Mobile, that would reduce their national competition by 33 percent and likely force Sprint to merge with Verizon (or fold), leaving just two national providers controlling 80 percent of the wireless market. As the DOJ complaint made clear, with just two national providers the risk of anti-competitive coordination goes up.

And it should go without saying that a cell phone is not a burger. When you buy a Happy Meal, you don't sign a contract to continue buying Happy Meals for the next two years. Wireless telecommunications are integral to everyday life in a way that hamburgers are not. And cell phones make use of a spectrum, a publicly owned resource that is available in concretely finite quantities, which provides the government with special incentive to carefully regulate the wireless market. Also, if you're turned off by the high price of a burger and fries at McDonald's, you can find the same exact meal elsewhere. Abandoning AT&T or Verizon for a less expensive regional carrier usually means severely limiting your choice of mobile devices.

What else can we throw at this one? How about this: To compete with a national wireless provider, a regional provider must have huge amounts of capital to construct and maintain wireless infrastructure, as well as pay for the rights to spectrum and increasingly advanced (read: expensive) wireless communications technology. (In 2006, Metro PCS paid $1.4 billion for spectrum rights.) And even then they still rely on national providers' networks to provide roaming services when their customers leave the coverage area. Drawing from the example of the current Washington, DC food trend, all one needs to compete with McDonald's at a local level is a specially outfitted truck and a good empanada recipe.

So, no: AT&T and McDonald's are not facing a "similar landscape of small and large rivals." And until the day comes when you can check your email on a Big Mac, that's not going to change.

Posted In
Economy
Network/Outlet
Chicago Tribune
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