AT&T/Time Warner recently announced that they were entering into an agreement worth approximately $9 million with Verizon to manage their email services and web portal.
While the news may have only been noticed in Buffalo, N.Y., the hometown of the company that lost the contract, this deal should matter a great deal to all Americans as it is a dangerous portent of further consolidation of interests between the two of the three largest telecom companies in America.
What many Americans may have forgotten is that AT&T was originally founded by the inventor of the telephone, Alexander Graham Bell, and became the “telephone company” with 22 local subsidiaries. The Reagan Administration used the nation’s anti-trust laws to break up the behemoth in 1984.
Verizon is the result of a 1994 merger between two of the so-called Baby Bells (Bell Atlantic and NYNEX) which were spun out from “Ma Bell” and have subsequently become the largest wireless carrier and the third-largest telecommunications company in America.
AT&T/Time Warner, for its part, just last year won a bruising anti-trust battle against the U.S. Department of Justice when a federal judge erroneously (in this author’s opinion) found that the merger between AT&T and Time Warner was legal under our nation’s law. Fresh off of this massive vertical integration play, the company somewhat shockingly entered into this small deal with its largest current competitor in the hot 5G wireless space to manage email and web portal customer relations on their behalf.
The effect for consumers is that Verizon will be managing AT&T/Time Warner’s most significant consumer-facing digital property. Those consumers chose to entrust their data privacy to AT&T/Time Warner, not Verizon. Yet, this deal would put AT&T/Time Warner’s tens of millions of customers’ data squarely in the hands of its competitor, leaving a skeptical outsider to wonder about their long-term motivation.
With multiple bidders, including the incumbent contract holder, vying for the contract, somehow AT&T/Time Warner flew like a moth to a flame into an agreement with the one company it should have kept at arm’s-length – Verizon.
Let’s be clear, it isn’t that either AT&T/Time Warner or Verizon are bad companies. It is that consolidation and cost sharing are very alluring in the very expensive world of developing the communications links of the future, where wireless spectrum leases can sink or swim a company’s future. And when the two currently dominant players in the spectrum marketplace start playing footsie by entering into seemingly innocuous vendor agreements, that operational integration raises red flags.
And while the government has no business picking winners and losers, we cannot forget the lessons learned in the aftermath of the Reagan break-up of AT&T; that strong, competing companies in the telecommunications space create innovation and drive down costs while enhancing the customer experience.
As our nation faces challenges from around the world, it is this type of intense competition which will give us the cutting-edge advantage over the monolithic state-run competitors around the world. While it is premature to urge a federal regulatory inquiry into this tiptoe toward collusion, AT&T/Time Warner executives would be well served to do a cost analysis of whether the hackles likely to be raised over this small-dollar vendor agreement are worth the potential liabilities which it might invoke.
In the game of Jenga, you pull out blocks in a tower with the goal of keeping the tower standing once your block is removed. In the game of creating a mega-company, sometimes you need to know what contractual partners you need to avoid to keep the illusion of competition in place so you can continue to grow your empire. AT&T/Time Warner should avoid doing deals with Verizon like the plague and should reconsider the wisdom of entering into the email services/web portal servicing contract with them.
Sometimes discretion is the better part of valor, and this would be a good time for AT&T/Time Warner to engage in a strategic retreat before anyone actually starts paying attention.
Richard Manning is the president of Americans for Limited Government, a group dedicated to restoring constitutionally limited government.
