Since last August’s move by the U.S. Justice Dept. to block AT&T’s proposed acquisition of competing wireless carrier T-Mobile from parent Deutsche Telekom (DT), there has been renewed debate in Congress and in the public discourse over the role of government in regulating the affairs of private enterprise. Last month, policy analysts — evidently just learning to use these search engine things you read so much about — appeared to strike a gold mine: a report from the Economic Policy Institute (PDF available here) that appeared to not only confirm but bolster AT&T’s claim that the merger would lead to net jobs creation.
Usually when something is repeated enough times over the Web, it becomes the truth — or at least gets added to Wikipedia, which for many is the same thing. But in the wake of criticism of what appeared to be the authors’ jobs creation claims, the EPI responded that it never made such claims to begin with. That led the Federal Communications Commission last Thursday to begin probing how those claims were invented, by whom, and why.
Thursday, FCC wireless telecom bureau chief Rick Kaplan sent a letter to AT&T’s attorneys (PDF available here) asking for a fuller response to its questionnaire about the benefits of its proposed merger — specifically for more information on Question 36, which apparently stated the merger would result in jobs creation without saying how.
The seed for all this confusion was planted on May 31, by an EPI analysis paper written by Ethan Pollack. For every $1 billion invested in wireless infrastructure, Pollack’s data asserted, some 12,000 “job-years” are created — meaning, that billion dollars would keep 12,000 people employed for one year. Pollack then cited an AT&T press release promising to invest $8 billion over a seven-year period in improving the joined infrastructure of AT&T and T-Mobile. He writes:
Given the job impact analysis noted above, a plausible range of impact would be between 55,000 and 96,000 job-years. To reiterate, the jobs estimate includes both direct jobs within the primary industries that meet the additional demand for goods and services and supplier jobs in the secondary industries that supply those primary industries with intermediate goods and services. The estimate also includes “induced jobs” created as incomes earned by newly hired workers are spent back into the economy. The figures are again listed as job-years, which refer to a job held for a single year… Our estimate assumes that the $8 billion in investment is spread equally over the seven-year horizon.
The keyword there is in that last sentence: “estimate.” It appeared to some to say that EPI was making a formal estimate of jobs creation, as that single word might imply.
A week later, following a public forum on the subject sponsored by EPI, labor union blogs including the AFL-CIO began reporting that an EPI study said some 96,000 high-paying jobs would be created as a result of the merger. That led progressive writers, including Nathan Newman for the Daily Kos, to argue that organized labor should support the merger if only to maintain the T-Mobile jobs that would otherwise be lost if DT simply pulls out of the country.
Then early last month, Sprint sued to stop the merger on anti-competitive grounds. To back up its claims, Sprint called upon an independent study by UC Irvine Professor David Neumark, who threw a huge bucket of cold water toward what was being treated as the EPI “estimate.” As Neumark wrote:
The EPI analysis claiming that the AT&T/T-Mobile merger will create jobs because of increased capital investment is completely unfounded. It is based solely on a claim by AT&T that it will increase its capital expenditures. But it appears to ignore reductions in capital expenditures that T-Mobile would have undertaken, and the strong likelihood that net capital expenditures would decline as a result of the merger. Indeed AT&T has told the federal government and its investors that the merger would lead to reduced capital expenditures. By EPI’s own logic, the net reduction in capital expenditures would lead to fewer jobs.
Neumark’s report triggered a new wave of op-ed pieces attacking the government for its own allegedly anti-competitive motives, including this from The Street guest columnist Bruce Mehlman. “The days of Standard Oil are long gone, and few leading tech companies remain on top for long,” Mehlman wrote. “Or perhaps some lawyers are listening to the doom-and-gloom voices warning that this merger would spell the end of wireless competition, just as skeptics counseled against previous wireless combinations.”
Later that month, Center for American Progress Senior Fellow David A. Balto writing for The Hill took the labor unions’ view that without the merger, the T-Mobile assets and the jobs attached to them would fade into history. Wrote Balto: “The opponents ignore the reality: T-Mobile is on its way out. T-Mobile’s parent Deutsche Telekom has made it unambiguously clear — they are withdrawing from the United States. T-Mobile’s days are clearly numbered. And with DT’s withdrawal over 40,000 jobs will be lost. That’s 40,000 more American families facing the devastating harm of unemployment.”
On September 20, some 100 House Republicans wrote Pres. Obama, citing the jobs creation numbers being bandied about, and challenging his earnestness toward the goal of jobs creation. “This action by your administration will thwart job creation and economic growth and undermine your own efforts to achieve our shared goal,” the congresspeople wrote.
But a statement released earlier that month by EPI in response to Neumark (PDF available here) had not been fully disseminated. It should have been bad news for everyone, informing Sprint that Neumark hadn’t really read the report in depth, but also informing AT&T and its supporters that congresspeople and op-ed writers should never have used its original report to paint such rosy conclusions in the first place.
“The report did not examine whether or not the merger actually would result in a net increase of investment. Nor did it analyze the broader impact of the merger, which would involve extensive knowledge of what would happen under a scenario in which the merger did not occur,” the statement reads. “Could T-Mobile survive as an independent company, or would Sprint succeed in merging with T-Mobile (as it has already tried to do)? In each of these scenarios, what would be the investment levels? What would be the changes in the cost structure? This type of counterfactual analysis goes way beyond the scope of EPI’s report.”
The EPI — which in the past had been an outspoken critic of Republican policy — was actually listing the various bullet points that its own report refrained from covering, and some might say, neglected to cover. That didn’t stop it from becoming a hot-air balloon of sorts for floating the hopes of merger proponents. Now that the hot air has been dissipated, the FCC is left wondering how anyone ever came to the conclusion that this merger, unlike almost any other merger in history, would lead to overall jobs growth. AT&T has until October 31 to comply with the FCC’s request.
