Rare Instance Of Regulation Prompts Cries Of "Overregulation"

Blog ››› ››› SIMON MALOY

Last week, AT&T and the Federal Communications Commission had a bit of a falling out.

It all started when FCC chairman Julius Genachowski informed AT&T that the commission would recommend a judicial review of the wireless giant's proposed acquisition of T-Mobile, citing concerns over anti-competitive effects and job losses. AT&T responded by withdrawing their merger request from the FCC in order to focus their attention on the Justice Department, which had already sued to block the deal. The FCC allowed the request to be withdrawn, but also released their own staff report on the proposed merger which detailed their concerns and the various "material questions of fact" left unanswered by the two telecom companies. AT&T fired back at the report, calling it biased and an "advocacy piece."

In short, AT&T -- known for getting its way around Washington -- has hit a regulatory wall. And this is unacceptable to L. Gordon Crovitz of the Wall Street Journal, who writes today (subscription required) that the FCC's actions are gross examples of "overregulation" and a lack of "regulatory humility."

How soon we forget the risks of overregulation: Last week, the Federal Communications Commission flexed the same muscle it once used to quash market forces in the phone industry to quash market forces in the wireless industry.


We live in an era when innovation in technology requires more regulatory humility. If a company wants to serve consumers better by risking its capital to buy spectrum through an acquisition, it should be allowed to proceed. Company executives can then be blamed if they either underinvest or overinvest in spectrum. FCC lawyers should stick to writing briefs.

So long as regulators apply rules for mature industries to new technologies, we will have problems such as spectrum scarcity and industries kept artificially inefficient. Until regulators change their ways, blame a meddling FCC when calls get dropped on your mobile phone.

Crovtiz's argument essentially boils down to the idea that AT&T, and not the government, knows what's best for their company, their industry, and their customers. If that were the case, you'd think they would have done a better job arguing their position and not made flagrant mathematical errors or blatantly false statements about job-creation.

But more significantly, it's absurd to cast the FCC's opposition to this merger as an instance of government regulation run amok. The New Republic's Jeffrey Rosen writes today that "the merger was so flamboyantly anti-competitive that both the Justice Department and the FCC had little choice but to block it, making it only the second proposed merger that the FCC has decided to block on similar grounds in the past 40 years." Indeed, if you look at just the last decade or so, there have been five major wireless telecom mergers that have all passed regulatory muster, resulting in a highly concentrated wireless marketplace (and a rate of decline in wireless prices that has essentially been flat).

It's become such a rarity for regulatory agencies to actually flex a little muscle in the telecom arena that small-government, unfettered market types like Crovitz are screaming bloody murder when it happens. The reality is that it took a proposition so fundamentally anti-competitive and unjustifiable as the AT&T/T-Mobile deal to prompt the regulatory agencies -- which spent the Bush years happily rubber-stamping their way towards wireless consolidation -- to lurch into action.

Posted In
Government, Cabinet & Agencies
Wall Street Journal
L. Gordon Crovitz
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