Quote of the Day
The challenge of leadership is to
be strong, but not rude;
be kind, but not weak;
be bold, but not a bully;
be thoughtful, but not lazy;
be humble, but not timid;
be proud, but not arrogant;
have humor, but without folly.
Jim Rohn
Justice Department Block of Merger
Between AT&T and T-Mobile:
Another Example of Ideological Idiocy Run Amok:
Thumbs DOWN!
Progressives just can't seem to decide whether they like low prices or not. You see, if it's Wal-Mart's economies of scales, which allow them to squeeze suppliers for lower prices and pass them along the savings to lower/middle-class consumers, progressives only see the charming mom-and-pop businesses shutting down because they can't compete on price. And, of course, everyone KNOWS that the first thing that ruthless Wal-Mart does, after driving all the village shops out of business, is jack up the prices on everything in the store.
Well, of course, this doesn't happen. Wal-Mart realizes raising prices on items costs it sales because the discretionary income of its customers is limited; it makes more profit at lower prices because of sales volume.
Some industries are intrinsically capital-intensive, a natural barrier to entry (meaning fewer competitors, just like the telecommunications industry). It's not just the current technology of telecommunications services, but future generations; consider, for instance, AOL which once dominated dial-up Internet services. Companies that fail to remain competitive in rapidly changing industries permanently lose market leadership. Who would have known 20 years ago that a significant portion of phone customers would willingly drop their landline service, a highly-regulated monopolistic industry, in favor of exclusive cellular service? Or the domestic long-distance price wars would become almost irrelevant with "free" bundled long distance with many cellular and/or digital voice plans? Or once thriving video rental franchises, newspapers, and book chains would go bankrupt as you can download real-time news, books or even recently-released movies in less time than it takes to drive to the nearest mall and at a very competitive, if not lower price?
The Justice Department not only has an incompetent knowledge of basic business and economics, but it is purposefully and conveniently overlooking general price-performance trends in this and related industries. When I was teaching, a quality PC cost thousands of dollars; today, one can buy a much faster computer with vastly more storage and memory at a fraction of the price and many top-notch software programs, the proprietary alternatives which used to cost hundreds of dollars, are available free (excluding any relevant metered download costs). There are only a limited number of major PC makers, hard drive manufacturers, CPU chip producers, etc. The ability to drive down prices is a competitive advantage and lures more consumers into the market; when I worked for a few months in Brazil back in 1995, many, if not most families didn't have landline services; it cost thousands to obtain service and took a considerable waiting time. But nearly every young professional Brazilian I knew had a cellphone. You can't put the price genie back into the bottle; the vendor would lose some his economies of scale and resources needed to develop the next generation of service, there are too many substitute technologies and services, too much capacity out there, and higher prices and margins would draw more competitors into the market.
We see consolidation in all sorts of industries under tough economic or industrial conditions (remember back in the 1990's when we saw the price per barrel of oil drop to a fraction of earlier prices?) The motivation was to gain scale while wringing out redundant overhead costs.
The real question is whether it's really in the long-term interests of the American people for AT&T and T-Mobile, both well behind the market leader Verizon Wireless, to be able to compete against the market leader in the next generation of services without combined resources. My guess is that almost certainly T-Mobile would be unable to do so. Contrary to the myopic progressive Justice Department, competition would be better served by enabling a stronger AT&T to compete against Verizon Wireless.
NOTE: In terms of proper disclosure, I do not own shares of Wal-Mart, AT&T or T-Mobile, or subscribe to a relevant cellular plan. (My own cellphone service is operated by a competitor.) I think most anti-trust actions have been ill-considered, just like this one. I urge AT&T to fight the unconscionable decision by a politically-motivated populist Justice Department.
Musical Interlude: My Favorite Groups
Air Supply, "Every Woman in the World"
