The Smartphone Wars: Alarums and Mergers

Running a cellphone network is a brutally capital-intensive business with thin profit margins, and subject to heavy regulation. Any economist will tell you that all three of these factors favor size – capital concentration confers a stronger advantage, thin margins can only yield a decent profit at high volume, and larger organizations can better afford the costs of capturing their regulators.

The Washington Post has an interesting graphic on the results in the U.S. wireless-carrier market:


Wireless company mergers

This graphic is a bit behind today’s news; the Feds have sued to block the AT&T/T-Mobile merger. As a T-Mobile customer I wasn’t looking forward to it; as a staunch advocate of free markets, I’m not happy that the Feds have the power to stop it.

My preferences aside, the interesting question is whether blocking this merger can actually prevent further consolidation. I’m not very optimistic about this; the economics are what the economics are, and the real rates of ROI on wireless networks are negative. There is, sadly, every likelihood that smaller carriers like T-Mobile that don’t merge with larger ones will simply go under, leaving their assets to be snapped up by the remaining incumbents at the going-out-of-business sales.

What we need to fix this situation isn’t antitrust law but some sort of technological break that changes the economics of the business so it favors capital concentration less. Perhaps stealth mesh networking would do it?

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