AT&T’s $39 billion cash-and-stock bid for T-Mobile USA is a huge loss for the Seattle area. It will mean the elimination of an important corporate headquarters, as well as the end of thousands of well-paying jobs. The ones lost will be the high-end talent magnets. Also lost: The capital, prestige and power a headquarters brings,
The unhealthy incentives for mergers resulting in further anti-competitive industry consolidation is a bad thing for the American economy, not just the hundreds of cities that have seen their local economies devastated. It means more concentration, less innovation and competition. Managements spend too much of their time dealing with mergers, whether doing them or fending off the Wall Street bankers and lawyers that earn huge fees by peddling these deals. But as long as favorable tax treatment and no antitrust enforcement continues, they will be part of the landscape. The reality is that Seattle is growing fewer companies to last than it is losing them, and we’re better off than most places. It’s a huge challenge for economic-development leaders.
As for the deal: AT&T gets to grow through an acquisition, rather than organically by actually serving customers well (how’s that iPhone network working out for you). AT&T shares have been trailing the S&P 500 since the carrier lost its exclusive deal with Apple. The number of national wireless carriers will shrink from four to three.
T-Mobile’s demise is not unexpected. Last year, the 24/7 Wall Street blog listed it among the “10 brands likely to disappear in 2011,” citing falling profits and larger competitors. T-Mobile parent Deutsche Telekom will pocket a nice profit. AT&T is sure to be distracted by the deal, further eroding customer service.
Back to the economic-development aspects. Regular readers know that I believe there’s nothing like a major headquarters for well-paying jobs, civic stewardship, attracting talent and capital, and fostering executive talent that leaves the mother ship to start new enterprises. Back-office towns always languish.
There’s little local leaders can do to change the distortive incentives behind concentrating mergers. But urgent questions need to be asked about maintaining a dynamic economy for startups, and ensuring that some of them aren’t quickly sold to repay venture capitalists and hedge funds. I don’t have the answers. But we may have a long wait for the next Amazon, Starbucks and Microsoft.