How Anti-Trust Policy Hurts the Little Guy
Investigative journalist Ida Tarbell published her book The History of the Standard Oil Company in 1904. In it she claimed that John D. Rockefeller’s business model of owning the entire line of production, thereby cutting out contractors and eliminating inefficiency, was essentially unfair and allowed “predatory pricing.” Since then, the US has suffered from a pathological fear of “big business.” The US’ anti-monopoly regulation, called “anti-trust” and rooted in the legislative reaction to Tarbell’s book, purportedly promotes healthy competition in a free society. In general, though, it has the opposite effect. Further, whenever the anti-monopoly laws are exercised against private companies, those hurt are often the poorest and most vulnerable in society.
The most recent example, the week of 22 July 2019, has passed without much notice or comment except from the watchers of financial markets. Two of the largest private mobile data provides in the US, T-Mobile and Sprint, have been in negotiations for several years to merge companies. This is a sensible business move from the point of view that Sprint has been struggling financially for years but is also the owner of an array of network towers and infrastructure in less-accessible parts of the country.
In 2017, federal regulators intervened and halted talks through launching an investigation into the companies for violating anti-trust law. After threatening all types of fines — for the crime of the companies talking to each other, and other nonsense — regulators agreed in late spring 2019 that the merger could proceed. This was done with the support of the new FCC chairman Aijit Pai, a man who is known for his deregulatory approach. There was a condition, though: T-Mobile, as the larger of the two companies, had to sell off part of its operations in order to reduce its size and perceived power. Upon being ordered to chop off some of its branches, T-Mobile promptly sold its prepaid and low-end service plans to rival Dish Network.
There are several problems with this event. It is essentially a government-mandated subsidy of one private company (Dish) by another, more successful one (T-mobile). At this point one might very reasonably ask: Why not simply nationalize the former and turn it into a state monopoly, thereby shedding any pretense of impartiality? The other primary problem is one of quality of service to a specific subset of consumers.
Bluntly, the people who are using the subscription which T-Mobile was compelled to sell off are those who can least afford the more expensive, but also more serviced, data plans. One of the great revelations of the Standard Oil business model was that it showed that ownership of the complete line of production was key to lowering consumer cost. When Standard Oil was broken up by federal mandate in the 1920s (the gap was due partially to World War I and partially to the inability of prosecutors to prove that the company committed wrongdoing), the price of oil and kerosene rose, victimizing the consumer who now had a higher cost of living. Ultimately, the model of Standard Oil continues to be relevant today.
With the merger of Sprint and T-Mobile taking place on the condition of T-Mobile as the larger network selling part of its operations to Dish, one wonders whether or not the T-Mobile model is going to repeat the history of Standard Oil. One detail that emerged during the negotiations was that Dish does not own any of its own cellular network, being primarily a satellite TV service, and will use T-Mobile and Sprint’s existing towers while it attempts to build 35,000 towers of its own to serve their new clientele. The portions of T-Mobile’s operations sold off to Dish involved its prepaid plans and its low-cost plans that are the almost exclusive domain of the people who most need low consumer costs. As happened with the break-up of Standard Oil in 1911 where the cost of oil and kerosene rose, i.e., heating and transportation costs, one wonders whether or not the same is about to happen. After all, someone will have to pay for the new towers, and the contract with the other two companies for use of their facilities is finite, along with the one-time payment that they gave Dish as part of the deal.
All of US antitrust law was set, as previously stated, mostly on Ida Tarbell’s expose from the early 20th century. However, that exposé was itself fallacious because she set out to prove that there was predatory pricing involved solely on the assumption it was impossible for Rockefeller to own as much of the US oil market as he did and not be presumed to be engaged in predatory pricing. Aside from being bigoted, her view was very myopic. She only looked at the US as a single entity and did not consider the global market in which he was in very direct competition with oil coming out of Eastern Europe and, later, the Middle East.
The modern relationship between law and business, dating back to either Ida Tarbell and her exposé on Standard Oil, is built on the fallacious idea that big must of necessity be bad for the little guy, and yet, as the history of Standard Oil shows, sometimes the little guy benefits more from big than he does from small. The example in the case of the data networks is also that such governmental interventions violate the consumer choice that they claim to protect. The subscribers to T-Mobile’s lower-cost plans received no choice in terms of their accounts being sold to a different company, one that is currently incapable of providing organically the types and quality of service as their previous servicer. If the 35,000 required towers are not completed by the end of the providers’ contract, it is not improbable that users will see their costs rise exponentially through roaming fees and data usage limits, essentially penalizing consumers for using the very network to which they were once subscribers. In this way, it is hardly surprising that there must of necessity ultimately be a conflict between being the low-end consumer and the bigger company, often because really in the name of claiming consumer choice, the antitrust laws have exactly denied these people consumer choice. This entire case is an example of how we need to reexamine and reform antitrust law and, as part of doing so, to lose our fear of big and to not attempt to dress this up in the guise of protecting and promoting healthy competition.