A new study commissioned by Sprint (News - Alert), and conducted by David Neumark, professor of Economics and director of the Center for Economics and Public Policy at the University of California at Irvine, suggests that an AT&T (News - Alert) purchase of T-Mobile USA would eliminate 34,000 to 60,000 jobs. Study shows job losses

The study directly refutes claims made by AT&T, based on a memorandum by the Economic Policy Institute (EPI), that the merger would be a net job creator. You might wonder how that claim can be made. The EPI analysis looks at jobs created for other firms building new infrastructure, not necessarily the impact on AT&T or T-Mobile (News - Alert) USA employees because of a merger. EPI analysis here

Some have pointed out that if the issue is spectrum, AT&T could invest directly in spectrum at far lower cost than buying T-Mobile USA to add that firm’s spectrum to its own. Also, one might argue that aggregate industry investment in new facilities would not be appreciably greater if the merger succeeds. In fact, aggregate investment might be higher if the acquisition did not occur, precisely because four firms would have to upgrade, instead of three.

In a market with three leading facilities-based contenders, there will less duplicate investment than in a market with four facilities-based providers.

The claim that a horizontal merger will lead to job gains is curious. It probably is true that mere ownership changes do not directly cause job losses. But big mergers are a different matter. Horizontal mergers cost jobs

It simply stands to reason that there are redundant job functions when two firms merge primarily to gain scale. You have two sets of overhead that can, and should collapse to a single set of overhead. Retail locations become superfluous. Software and services vendors might be cut in half, or more. There will be excess real estate, efficiencies in virtually all marketing and sales operations.  Job redundancy in horizontal mergers

In fact, the typical expectation is that a large horizontal merger will be accompanied by job losses of some significant magnitude.  Downsizing is typical

In his analysis, Neumark notes the EPI memorandum bases its job projection on AT&T’s claim that the merger would result in an increase in capital investments of $8 billion. However, Neumark observes that this $8 billion figure is not an estimate of the net effect of the merger. It ignores the capital expenditures that would otherwise have been made by T-Mobile (an average of nearly $3.4 billion in each of the last three years.) Moreover, AT&T has been promising cuts in capital expenditures to Wall Street.

“There may be some new investment generated by the merger, and this may be reflected in the $8 billion figure that AT&T has cited in the press. But this is just a gross figure. There will also be diminished investment elsewhere, and the only thing that matters for job creation from changes in investment that would result from the merger is the net change in capital investment.

Assuming AT&T’s net capital investment falls by $5 billion, it would result in job destruction of 34,000 to 60,000 using EPI’s own analysis, Neumark concludes.

Neumark noted that creating jobs through mergers would be completely inconsistent with AT&T’s own history. The study reports that, since 2002, AT&T has eliminated more than 107,000 job-years relative to what would have happened had AT&T’s employment simply grown by the number of employees acquired through several acquisitions.

This is also consistent with what AT&T has been sharing with the investment community; that the merger would entail employment reductions from rationalizing operations. Jobs impact

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