ASSIGNMENT #4
LONG-TERM INVESTMENT DECISIONS
BY
MARIO LEE

Dr.John
MANAGERIAL ECONOMICS
DECEMBER 21, 2012
LONG-TERM INVESTMENT DECISIONS

Like most industries that has a direct impact on the way society lives, does business or functions, the telecommunications industry must operate under the strict standards set forth by government regulation. All forms of telecommunication bring people and business together to make decisions that help shape the landscape of the world. Monitoring how information is transferred and communicated between parties is a necessity to prevent one supplier of telecommunications services from monopolizing the market. Such a monopoly would not allow consumers to exercise their rights of choice, inflate prices for services and to a certain degree limit technological development. Government involvement in a market economy is because sometimes market fails to satisfy the needs of the consumers. If this happens, the government needs to intervene in order to keep the economy up to acceptable standards. In recent years, due to the recession and volatile economic climate, a debate has raged between liberals and conservatives regarding the role of the government when it comes to the way businesses are structure and operated. If businesses or industries falter, those directly affected by such shortcomings wants the government to intervene. However, owners, shareholders, and officials of businesses wants to limit how much input the government can have to restructuring the way businesses are operated. The fear is that if the government has too much control, than short and long term profits will be affected and we may move away from a capitalist society to one where government has too much control. The telecommunications industry has already seen how government intervention can change the landscape of the industry. In 1974, the landmark United States v. American Telephone & Telegraph Company antitrust case was filed and was settled in 1982, which led to the Bell System divestiture. The U.S. government believed that AT&T had capitalized and cornered the market when it came to telecommunications and telephone services. Not only were they the primary source for such services, AT&T also wouldn’t allow telephone equipment to be purchased or sold, only leased. Since they were the inventors of such technology, it was believed that they monopolized that technology in a manner that made it virtually impossible for consumers to use a secondary source for their telecommunications needs. Such a monopoly kept other entrants from developing or using new methods of telecommunication and AT&T did not expand too much on the technology that they had in place. It is believed if the government didn’t intercede and force AT&T to dissolve; the break through telecommunications technology that is used and enjoyed today may not have been invented. Although AT&T was forced to dissolve into smaller regional entities, AT&T has managed to purchase or merge with those entities over the years and they are still the primary source of telecommunications services and needs. There are other viable companies within the domestic industry that can be used rather than AT&T, however, AT&T has name recognition and generations of loyal users that have remained with them if for no other reason than it is the originator of modern telecommunications and have the name people know. In communist societies, there aren’t any choices for consumers and citizens to use any products other than those that government provides and has direct ownership of. In a capitalist society, the government encourages competition and freedom of consumer choice. When a company within an industry creates technology for the improvement of society and can directly affect how society functions, they government will not allow that company to shelter that technology and regulate price, usage and restrict sharing that technology. Telecommunications, energy and electricity are industries where any technological development and distribution will be regulated by corresponding government agencies, i.e. Federal Communications Commissions (FCC) and Federal Energy Regulatory Commission (FERC). Microsoft, who founded the technology used on a vast majority of computers across the globe was viewed by the government as a monopoly similar to AT&T back in the 1970s, however, Bill Gates, the founder of Microsoft, citied intellectual property laws as one of the difference between the two companies. AT&T had patents on their technology; however their technology dramatically changed the way society functions in life. Microsoft was another life altering invention; however, there are still more people who don’t own or use computers, rather than not using a telephone. Microsoft has also lost much of its place hold on the industry due to the viability and advanced innovation of Apple products and operating systems. Whereas AT&T still holds a majority of the telecommunications industry although they have competition from Verizon, Time Warner, Comcast and other local and regional telecommunications providers. Even with the competition with AT&T, many of the competitors have to lease utility devices and technology from AT&T. In recent years, AT&T has executed several mergers. In 2007, they acquired Cellular One for $2.8 Billion Dollars. In 2008, they acquired Centennial Communications Corp and sold Louisiana and Mississippi interests to Verizon Wireless for $240 Million Dollars. Also in 2008, they purchased Wayport, Inc., who was a major Internet hotspot provider. In a move to expand 4G wireless services, AT&T purchased $1.93 Billion worth of spectrum from Qualcomm in December, 2011. The March, 2011, attempted merger with T-Mobile Communications fell through partially due to the fact such a merger would give AT&T too much of a market share of cellular customers leaving them with only two strong viable options, between AT&T and Verizon. If self-expansion was used to enhance the industry, instead of constant mergers and acquisitions, AT&T could use its considerable resources, pedigree and telecommunications expertise to enhance existing towers, concentrate in oversees and foreign expansion, especially in markets that lack strong viable telecommunications services; and put more into research and development. As with any capital projects, venturing into such endeavors close attention has to be place into the amount being spent on such ventures. The current economic conditions make it difficult to execute a project and suffer tremendous losses due to improper planning and execution. Finding value in such expansion activities if it will not produce profits is essential. Value isn’t limited to capital gain. How consumers and the industry will respond to expansion in the market is also imperative. Depending on what type of project that is in development, regulatory approval will have to be obtained in order to proceed with the project. A precise timeline will have to be developed and calculated in order to safeguard against any potential delays, over expenditures, regulatory and management modifications. When gauging how to satisfy stockholders demands and managing a project to maximize effectiveness, one has to look at what is at stake and how similar business models were established and executed previously. While the scope of the project at hand may differ slightly in perimeter, it is crucial to convince stockholders that efforts are being developed to safeguard the integrity of the company as well as enhance the profit margin. As with the failed T-Mobile merger, if it can’t be established and proven that the project will best serve the public odds are the public, as well as regulatory agencies will not approve of the project, which will in turn jeopardize earning potential. A company must operate efficiently as well as remain fiscally responsible.

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