Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Sweene. You,
Speaker 1: along with my co host Lisa Brahma wits each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Well, income inequality and uneven economic
Speaker 1: economic opportunity clearly became key issues in the sixteen presidential election.
Speaker 1: To help us kind of dig through some of these issues,
Speaker 1: we welcome our two guests, Dr Jonathan Gruberg, Professor of
Speaker 1: economics at the Massachusetts Institute of Technology, and Simon Johnson,
Speaker 1: professor of Entrepreneurship at m I T and former chief
Speaker 1: economists at the I m f I. M f I
Speaker 1: should also say Dr Gruber is also key architect of
Speaker 1: Obamacare and Romney Care. Dr Gruber, Simon, thank you so
Speaker 1: much for joining us. So you guys, let's talk about
Speaker 1: the book you have written, and we're here to discuss
Speaker 1: it's entitled jump Starting America, How Breakthrough Science can Revive
Speaker 1: Economic Growth and the American Dream, which is available now.
Speaker 1: So with this book, Dr gribber Key findings, what's the
Speaker 1: kind of the key fundings that you guys came up
Speaker 1: with here? I think the key point is that we've
Speaker 1: forgotten an important lesson from the U S history, which
Speaker 1: is the in the boom decades post World War Two,
Speaker 1: what drove US economic growth was a fruitful partnership between
Speaker 1: the government and the private sector in developing new technologies
Speaker 1: that that grew the economy. We can get back to that.
Speaker 1: At the peak, we spent two percent of our entire
Speaker 1: economy on publicly financed R and D. It's now down
Speaker 1: to point seven. We need to get back to investing
Speaker 1: more R and D the causes growth, but we did
Speaker 1: do so in a way that involves the whole country,
Speaker 1: not just a few elite coastal cities that have that
Speaker 1: have been the major beneficiaries of R and D expenditure
Speaker 1: in the recent past. Yeah. With that point, Simon, I'm
Speaker 1: just curious. I think it's a fascinating idea. It's a
Speaker 1: great idea. Is the is there the political will given
Speaker 1: the budget deficits we have now to do this? Well,
Speaker 1: that's a great, great Christian evince Behind closed doors. We
Speaker 1: find a lot of agreement across the entire political spectrum
Speaker 1: on the need to support science and i H, as
Speaker 1: you know, gets a lot of support from Republicans and
Speaker 1: from Democrats. More funny for ni AH more initiatives like
Speaker 1: ni H. I think there's interesting that we're proposing a big,
Speaker 1: bold way to do it. I agree, but it would
Speaker 1: be benefit everyone across the country and that matters on Congress.
Speaker 1: What does indeed it does indeed especially in an election
Speaker 1: here coming up. Yes, so Jonathan, kind of how do
Speaker 1: we get there? What are you? What are something the
Speaker 1: practical suggestions that you have guys who call up with
Speaker 1: within your book. So one important practical suggestion is to
Speaker 1: realize that we have incredible reservoirs of talent all around
Speaker 1: the country. That while most of the growth in the
Speaker 1: US has happened in six or eight cities over the
Speaker 1: last couple of decades, we have places. In the book
Speaker 1: we identify a hundred and two places which are large,
Speaker 1: which have well educated populations, and which have affordable housing,
Speaker 1: which could become the technology hubs of tomorrow. The other
Speaker 1: suggestion we make is we need to move to a
Speaker 1: more ape political process through through sort of a commission
Speaker 1: that's an a political commission model on the base closing commission,
Speaker 1: let's make it a technology helb opening commission to help
Speaker 1: the side worship with the dollars of tomorrow. That's actually
Speaker 1: an interesting point and a political confission. Do you think
Speaker 1: I'm just thinking realistically, with all that we're seeing in
Speaker 1: Congress right now and the all the battling back and forth,
Speaker 1: it seems impossible to get coordination across the aisle. But
Speaker 1: it does if you think about you know, electric cars
Speaker 1: and the potential to invest in electric charging stations across
Speaker 1: the country and move towards That spells right, That plays
Speaker 1: right into the green deals. I mean, I mean that
Speaker 1: is an interesting way to get both sides of the
Speaker 1: aisle on the same page. Because you do you kind
Speaker 1: of dot every eye in course every take. Well, you
Speaker 1: could plug various technology visions into the mechanism that we're proposing,
Speaker 1: So the Green New Deal absolutely could fit there. If
Speaker 1: you want to promote more life science, if you want
Speaker 1: to into cure cancer, that could be the priority that
Speaker 1: gets plugged in. The key point is spend a lot
Speaker 1: more on the on the basic science. Privacy is not
Speaker 1: gonna do that because the private sector can't get and
Speaker 1: no one company can get all the games. But once
Speaker 1: you create that scientific information and infrastructure, it can spread
Speaker 1: and be a catalyst for private sector development. And that
Speaker 1: can happen absolutely everywhere in the country. Is not This
Speaker 1: is not a Silicon Valley or Boston promoting book. This
Speaker 1: is promoting a jump stop for thirty six forty five. Hey,
Speaker 1: let's go for fifty American states. So, Jonathan, I mean,
Speaker 1: when you think about it, the university system of this
Speaker 1: country has been, you know, are one of the backbones
Speaker 1: of technological advances over time. Um is that? And it
Speaker 1: seems like that could be anywhere. That could be anywhere.
Speaker 1: I mean I think of cities like Austin, Texas, which
Speaker 1: have become you know, huge tech areas. I mean, uh,
Speaker 1: my son's at the University of Colorado. There's a tech
Speaker 1: community out there in Boulder, in Denver. It can really
Speaker 1: happen anywhere. But does it? What's again? I'm just kind
Speaker 1: of wondering. I just don't see the government stepping up
Speaker 1: with big dollars today. Well, so two points in that.
Speaker 1: One of one of our favorite examples in the book
Speaker 1: is or lay To, Florida, home of the Emails not
Speaker 1: Mickey Mouse. Forty five minutes east is the center for
Speaker 1: the US micro computer micro simulation industry and the largest
Speaker 1: University of America, University of Central Florida, which went from
Speaker 1: mid sized university to now having the thirteenth rank electrical
Speaker 1: engineering department in the country. That area, forty five minutes
Speaker 1: of Orlando, has created a hundred thousand jobs over the
Speaker 1: past thirty years through a partnership of the government, the university,
Speaker 1: and the private sector. And where confident that this can happen. Look,
Speaker 1: if you want evidence, look at the Republican reaction the
Speaker 1: Green New Deal largely negative. Accept Lamar Alexander said how
Speaker 1: much he liked the research and development part of the
Speaker 1: Green New Deal. That's where we can get consensus. So interesting,
Speaker 1: I asked both of you this question is when you
Speaker 1: when you do this and you move into away from
Speaker 1: the coastal areas, as you say, we've seen what um,
Speaker 1: what this has done to Seattle in terms of real estate.
Speaker 1: We've seen what it's done to San Francisco in terms
Speaker 1: of homelessness. It seems to me there has to be
Speaker 1: a really concerned, uh concerted effort with local communities to
Speaker 1: sure that this doesn't happen in the locals, don't those
Speaker 1: who do not participate in this program don't get priced out. Yeah, absolutely, well,
Speaker 1: thank you to New York for the backlash against Amazon
Speaker 1: for making that point rather abundantly clear. Of course, it's
Speaker 1: a priority, absolutely, And you're also right that local communities
Speaker 1: have to be on board now. And you also know
Speaker 1: that more than two thirty communities in the United States
Speaker 1: bid on Amazon h U two. So they want the jobs.
Speaker 1: The jobs need to come with sustainable growth and and
Speaker 1: real estate is a key piece of this. One thing
Speaker 1: that makes so many parts of the Unit States attractive
Speaker 1: is real estate is really really cheap. If we say
Speaker 1: the numbers on air, and I think a lot of
Speaker 1: your New York based listeners are gonna want to move immediately.
Speaker 1: But you can buy a house in place like Pittsburgh
Speaker 1: for less than two thousand dollars a nice house, right,
Speaker 1: So what you want you don't want to lose that.
Speaker 1: You want to understand and appreciate that as part of
Speaker 1: the package, and you want to use that as a
Speaker 1: big part of the message, and you don't want to
Speaker 1: run out of space. So it's very important you think
Speaker 1: as a community about what kind of zoning you're going
Speaker 1: to have, what kind of develop you're gonna you're going
Speaker 1: to allow. People want to live together, they want to cluster,
Speaker 1: they want to live closer together than in the past.
Speaker 1: You need to make sure there's enough space for that.
Speaker 1: Is there enough trained Does this country have enough trained engineers,
Speaker 1: technical people to to do this? I mean when I,
Speaker 1: you know, several years ago when I came out of college,
Speaker 1: it was everybody on the wall street. Now my kids
Speaker 1: in our college that they're just all thinking tech and
Speaker 1: engineering and apps and things like that. Do we have
Speaker 1: enough technical expertise in this country right now? We have
Speaker 1: enough skill, we don't have enough technical expertise. I think
Speaker 1: that once again, one thing we've fallen behind on. One thing.
Speaker 1: The government did really well in the decades after World
Speaker 1: War Two, through things like the National Defense Education Act,
Speaker 1: was invest in both high school and college education the sciences.
Speaker 1: We need to get back to that. If we simply
Speaker 1: increase government investment in science but don't boost the supply
Speaker 1: of scientists, we're just gonna increase income inequality. We increase
Speaker 1: the demand and the supply. That means a large investment
Speaker 1: with local buying into improved education at both the high
Speaker 1: school and college levels. Yeah, that's that's an actually a
Speaker 1: really good point. I will tell you with my my
Speaker 1: kids who came up with very interesting degrees they wanted
Speaker 1: to study, and I pushed them all towards technology because
Speaker 1: it seemed to be the place to be. As you
Speaker 1: say it, is there a buy in from the university
Speaker 1: level um to help support that, for instance, make technology
Speaker 1: degrees more affordable. That's a kiosk absolutely, And you know
Speaker 1: who's gonna drive that the young people. The young people
Speaker 1: want the technology skills they want. I think that it's
Speaker 1: mixing technology with creative that's the future. That's what the
Speaker 1: artificial intelligence machines are not going to take away from you.
Speaker 1: But it has to be affordable. It has to be affordable,
Speaker 1: and we've got to look at that at the federal level.
Speaker 1: That after Sputnik seven, that's what we did. We made physics,
Speaker 1: math education much more affordable. Spread that around the country.
Speaker 1: There's a federal piece, but there's also a local and
Speaker 1: state piece. Right there's gonna be pathways through community colleges
Speaker 1: and other ways through state schools. We were very good
Speaker 1: at that in the past, and we've taken our eye
Speaker 1: off that ball. Frankly interesting, gentlemen, Thank you very much.
Speaker 1: Dr Jonathan Gruber, Professor of Economics and m I T
Speaker 1: and Simon Johnson, Professor Entrepreneurship at m i T discussing
Speaker 1: their new book, jump Starting America, How Breakthrough Science can
Speaker 1: revive economic oath and the American Dream. That book is
Speaker 1: available now. Thank you very much, gentlemen. I am Paul
Speaker 1: Swingey and we have Vince Cignerella sitting in for Lisa
Speaker 1: brahma Witz this morning. I guess taking a look at
Speaker 1: the f O m C mean minutes from yesterday just
Speaker 1: kind of confirms what I think the market was already discounting,
Speaker 1: which is the Fed remains committed to being on the sideline,
Speaker 1: at least for the near term. To see what that
Speaker 1: means for the credit markets. We welcome our next guest,
Speaker 1: r J. Gallas, and your portfolio manager, head of the
Speaker 1: Municipal Bond Investment Group ahead of the Duration Committee for
Speaker 1: Federated Investors. He joined us on the phone from Pittsburgh.
Speaker 1: R J. Welcome to the show. What did you take
Speaker 1: away from the f O m C notes and kind
Speaker 1: of the recent dubbish uh commentary from the Fed, how
Speaker 1: are you positioning your funds? Well, good morning, thanks for
Speaker 1: having me. I thought on that that the minutes weren't
Speaker 1: really necessarily market moving, but that doesn't mean there wasn't
Speaker 1: there wasn't some revelation in there that that I think
Speaker 1: is material first and foremost. Uh. It basically suggested to
Speaker 1: me the tone of the minutes themselves affirms the FED
Speaker 1: that is at neutral, that that one remaining dot that
Speaker 1: ticks up next year on the dot plot. If you
Speaker 1: look at the medians, um, don't have don't they don't
Speaker 1: put too much confidence in that dot. They sound like
Speaker 1: they're equally likely that the next move is an ease
Speaker 1: as it is a hike. And it's certainly affirmed the
Speaker 1: view that this year is not likely to see any
Speaker 1: move of FED target rates, at least not in twenty nine. Team,
Speaker 1: We'll see what happens next year. J question for you
Speaker 1: because this is kind of baffles me. Just a little
Speaker 1: bit ahead of the Duration committee. This is something I
Speaker 1: assume you're keen on the balance sheet. We went from
Speaker 1: prior to the financial crisis, a balance sheet of under
Speaker 1: a trithlen and now essentially the Fed is saying we
Speaker 1: need to keep it at three and a half TRISN
Speaker 1: does does that create any anxiety and us to why
Speaker 1: they need to leave that much stimulus in the system. Well,
Speaker 1: just for background, I used to work on the Fed's
Speaker 1: open market desk. I was a trader at the New
Speaker 1: York FED back in the nineties. At the time, the
Speaker 1: system open market account was seven hundred or eight hundred billion,
Speaker 1: you know, a fraction of its size today. And I
Speaker 1: think over the decades that have that have followed, the
Speaker 1: implementation of monetary policy changed drastically with all the various
Speaker 1: iterations of q E and then the development of various
Speaker 1: programs to manage short rates, you know, target rates, if
Speaker 1: you will, within the context of a massive amount of
Speaker 1: reserves in the banking system. And I think number one,
Speaker 1: they've shown that that their current framework works, that they
Speaker 1: can target short term rates even with massive amounts of
Speaker 1: excess reserves. Paying interest on reserves is another meaningful change
Speaker 1: that has occurred. Cored about ten or eleven years ago,
Speaker 1: if I recall correctly, So I don't think they're fed.
Speaker 1: UM needs to have UH needs to regress, if you will,
Speaker 1: back to the balance sheet that existed ten twenty years ago.
Speaker 1: UM the framework. It works, and I think they've proven that.
Speaker 1: And since it does, that means they have much more
Speaker 1: flexibility to leave the balance sheet larger if, in fact,
Speaker 1: the markets broadly defined suggests they should. Well, one thing
Speaker 1: that suggests they should leave it larger is the fact
Speaker 1: that the inter bank market for reserves is functioning fine.
Speaker 1: That the demand for cash if you chart on Bloomberg,
Speaker 1: the currency in circulation on the FED balance sheet, because
Speaker 1: that's a big liability, right, has surged in the last
Speaker 1: ten years. Um, So there's there's plenty of reason to
Speaker 1: have a larger balance sheet even without the reserve markets.
Speaker 1: That the demand for currency extremely large and it's grown rapidly.
Speaker 1: So that's one market that's telling you a big balance sheets. Okay,
Speaker 1: I think another set of markets are also telling you that.
Speaker 1: Number One. UH, the confluence of tightening in December and
Speaker 1: the perception of autopilot, which was fueled by the FED
Speaker 1: don't communications uh with respect to the balance sheet painted
Speaker 1: a worrisome picture that rates were still going up, quantitative
Speaker 1: tightening was was was going to persist, and the FED
Speaker 1: ran the risk of of overtightening generally speaking, and that
Speaker 1: had a lot to do with the fourth quarter tumult,
Speaker 1: the FED reacted to financial conditions which became very adversarial.
Speaker 1: They called off the dogs on tightening, and they said, hey,
Speaker 1: the balance sheet can remain large because the markets are
Speaker 1: telling us that's what they sort of need. And if
Speaker 1: the FED is sticking by what share Powell said in
Speaker 1: his January press conference that his primary goal is to
Speaker 1: extend the economic expansion. If that's your primary goal, then
Speaker 1: the balance sheet is a secondary goal, and one primes
Speaker 1: the other. And I think that as a result, they
Speaker 1: can have a big balance sheet and they're okay with it.
Speaker 1: It doesn't really necessarily worry me per se. What worries
Speaker 1: me is when people are talking about, you know, modern
Speaker 1: monetary theory, this idea of there's a free lunch, that
Speaker 1: the era of the currencies has told us that you
Speaker 1: can print your own money to as far as the
Speaker 1: eye can see to fund all kinds of fiscal expansion.
Speaker 1: I think that worries me. That's reckless. And I wonder
Speaker 1: if a large balance sheet is misperceived or misunderstood by
Speaker 1: those proponents of such theories to say, yeah, there's a
Speaker 1: free lunch, that that's worrisome. The politics of this get worrisome.
Speaker 1: So are j just you know, the next three thirty seconds,
Speaker 1: you know, just give us your sense a kind of
Speaker 1: economic growth. Obviously, the first quarter GDP a big slow
Speaker 1: down from the fourth quarter. Are you one of Are
Speaker 1: you in that campus says we will see accelerating growth
Speaker 1: in the remainder of nineteen in the US? Yes, yeah,
Speaker 1: we are. We are clearly the first quarters slower, uh,
Speaker 1: you know, maybe a high one handle, maybe two uh,
Speaker 1: you know, slower than where we've been, but but not
Speaker 1: terribly so. And we do think that's quite possible that
Speaker 1: chare Powell and his colleagues on the FOMC uh, there's
Speaker 1: a reasonable probability they can achieve the soft landing. Word
Speaker 1: of how Chairman Greenspan did back in the nineties, where
Speaker 1: you had an extensive monetary tightening in ninety four. It
Speaker 1: was very difficult at the time for financial markets, but
Speaker 1: on net a recession did not result. The Fed stopped
Speaker 1: tightening and achieved a soft landing, higher monetary policy rates,
Speaker 1: some tightening without the subsequent recession. That's their stated goal.
Speaker 1: I think the markets are suggesting they have a reasonable
Speaker 1: probability of achieving that goal. Of course, they're not the
Speaker 1: only variable. What happens in China, it happens in Europe
Speaker 1: trade policy and all the attenument risks around that are
Speaker 1: things to consider as well. R J. Gallow will have
Speaker 1: you back again. Lots to talk about across the FED.
Speaker 1: R J. Gallo, senior portfolio Managic had the MISS Bond
Speaker 1: Investment Group and head of the Duration Committee for Federated Investors.
Speaker 1: He joined us on the phone from Pittsburgh, Pennsylvania. Well,
Speaker 1: Theresa May accepted the European Union's offer to extend Brexit
Speaker 1: to October thirty one and must now sell it to
Speaker 1: skeptical members of Parliament and a Conservative party losing patients
Speaker 1: in her leadership. To get the latest, we welcome Leonel Laurent,
Speaker 1: columnists covering financial markets for Bloomberg Opinion. He calling us
Speaker 1: from London. Leonel, thank you so much for joining us.
Speaker 1: What does this extension mean for Theresa May and her government?
Speaker 1: So essentially, what this extension does is buy more time
Speaker 1: and we have to again stress that this is the
Speaker 1: second extension granted by EU leaders to the UK. So
Speaker 1: there is a sense not just of deja but is
Speaker 1: now an eternal, never ending political impast setting in but
Speaker 1: as you say, the ball is now in the UK's
Speaker 1: court and Theresa May is simply you're going to have
Speaker 1: to try all of her options again, which a bit
Speaker 1: more time, which includes trying to pass the deal that
Speaker 1: has been rejected three times by her own parliament, perhaps
Speaker 1: it may get through a fourth time, or working more
Speaker 1: with Jeremy Corbyn, the real enemy of the Conservatives, to
Speaker 1: get a potentially different deal that would get a different
Speaker 1: but positive support in Parliament. So there are options, but
Speaker 1: crucially there is more time to achieve those options. But
Speaker 1: even with more options, for history tells us, or at
Speaker 1: least what we've seen in the last two and a
Speaker 1: half years, that the chances of getting this done by
Speaker 1: the thirty one slim to none. What what is concerning
Speaker 1: me as a as a former trader and the guys
Speaker 1: I'm talking to on the street, is I'm hearing that
Speaker 1: this makes the no deal risk gone, that there's a
Speaker 1: sense of complacency that's come over of the currency markets,
Speaker 1: and that we can now step in and by Stirling
Speaker 1: without the worries that preceded it of a deal ending
Speaker 1: by Friday. How does that feel to you? That that
Speaker 1: does not feel too good to me? It doesn't feel
Speaker 1: good to me either. That's why I think I think
Speaker 1: he would be right to be cautious. And the reason
Speaker 1: why it's simply because the next date to bear in
Speaker 1: mind is October thirty one, right Halloween. And essentially what
Speaker 1: you have to bear in mind is if if you
Speaker 1: see this as you know, obviously it's a cliche to
Speaker 1: talk about a game of a game of chicken, but
Speaker 1: the point is, if we get to October thirty one
Speaker 1: and there is no progress, we have to ask ourselves
Speaker 1: whether the EU, which by this point will have already
Speaker 1: had European parliamentary elections which the UK will have had
Speaker 1: to take part in, will now have to decide whether
Speaker 1: it wants the Commission, the Executive arm which is going
Speaker 1: to have a sort of long term and and a
Speaker 1: new a whole new you know, a Risman, take a
Speaker 1: whole new team of people, whether and and they they
Speaker 1: sit on November one, and he's going to have to
Speaker 1: decide whether it really wants Brexit to in effect European
Speaker 1: decision making. And my concern is that the more time
Speaker 1: goes on, the more preparations for an odeal Brexit will
Speaker 1: be finalized. And you know, sadly the accident theory is possible,
Speaker 1: or even the political will to leave with an nodeal
Speaker 1: on either side will be there too. So I'm not
Speaker 1: convinced that the nodial risk has gone well. We can
Speaker 1: sense even over here in the US the sense of
Speaker 1: frustration and resignation on the part of you know, obviously
Speaker 1: the members of Parliament, but also the British people. Isn't
Speaker 1: it to the point now or that you know, it's
Speaker 1: clear that the existing plan isn't going to work, can't work,
Speaker 1: doesn't have any support, that it's probably worth coming back
Speaker 1: and trying something new, whether that's a second referendum or
Speaker 1: something else. Aren't we at that point? We are at
Speaker 1: that point? We you could say we were at that
Speaker 1: point a couple of months ago, you could say we
Speaker 1: were at that point, um, maybe even at the end
Speaker 1: of last year. That the problem is that at politics
Speaker 1: is about other things, and there is a lot of
Speaker 1: layers of self interest here, um And I think that
Speaker 1: the concern is that there is just maybe not not
Speaker 1: not as many incentives to do the right thing by
Speaker 1: the voters. Then then we might prefer so the self
Speaker 1: interest is perhaps elected representatives, is that maybe keep their jobs.
Speaker 1: Maybe they think that they will lose it if they
Speaker 1: advocate for a second referendum or some kind of new
Speaker 1: radical change. And I think on both sides what we
Speaker 1: are seeing is political reluctance to take responsibility for Brexit.
Speaker 1: I appreciate up until now it really has been the
Speaker 1: UK that should have taken responsibility. It hasn't. And I
Speaker 1: think we're also seeing that you reluctant to do the
Speaker 1: work for it and take responsibility for the harm of
Speaker 1: a of a no deal brexit. So right now it
Speaker 1: is very much a political game rather than doing the
Speaker 1: right thing for the country. Any chance of She has
Speaker 1: said perhaps that she would like to have something done
Speaker 1: by is to not participate in the EU elections. Sure,
Speaker 1: these these are all possibilities. And remember that the most
Speaker 1: hard line Brexit supporters view European elections as absurd, borderline treason.
Speaker 1: On the other hands, given that she has accepted this
Speaker 1: potential poet heady first extension, we are now in the
Speaker 1: realms of possibility. Everything is now possible. There could be
Speaker 1: European elections in the UK and maybe they might be
Speaker 1: a catalyst for change, maybe as the Conservatives do very poorly,
Speaker 1: maybe if there's a different kind of sentiment in the country,
Speaker 1: pro labor, pro Europe. All the other way you might see,
Speaker 1: you might see things change. Lionel, thank you so much.
Speaker 1: Lion on the rent calmness, covering finance and markets for
Speaker 1: Bloomberg Opinion in London. I can actually hear the resignation
Speaker 1: in his voice, as we can with many other folks.
Speaker 1: As we discussed this issue well. T Mobile is in
Speaker 1: the throes of trying to close its proposed acquisition of
Speaker 1: Sprint and all stock deal currently valued at almost thirty
Speaker 1: billion dollars, but the regulators aren't so sure. To get
Speaker 1: the latest on what is going on in the world
Speaker 1: of wireless in the US, we welcome John Butler. John
Speaker 1: is a senior telecom analyso Bloomberg Intelligence. He joins us
Speaker 1: live in our Bloomberg Interactive Brooker studio here in New York. So, John,
Speaker 1: it looks like the regulators are a little concerned here.
Speaker 1: Why so, they're concerned about the aggregation of share that
Speaker 1: would occur if you get Sprint and T Mobile together together,
Speaker 1: they'll have over a hundred million retail wireless subs, which
Speaker 1: will be right on par with for rise in and
Speaker 1: a T and T, so overnight you would have a
Speaker 1: market with three big players as opposed to the four
Speaker 1: players you have right now. And I think they look
Speaker 1: at what T Mobile has done in terms of wireless
Speaker 1: pricing over the past five years. They by the way,
Speaker 1: have been very aggressive in pricing their wireless plans and
Speaker 1: have really sort of kept A T and TM Verizon
Speaker 1: honest if you will. So I think the big concern
Speaker 1: to sort of close out the question is if suddenly
Speaker 1: they're on par in terms of size with A T
Speaker 1: and T and Verizon, are they going to need to
Speaker 1: really go out with low prices to get subs um
Speaker 1: you know, And that's the concern. But is that the question?
Speaker 1: I mean, it seems to me that they seeing what
Speaker 1: T Mobile has done, um, they probably just keep continuing
Speaker 1: to do that to keep trying to gain market share.
Speaker 1: Because as you said, they're not any bigger than Verizon
Speaker 1: or a T and T. It just puts them in
Speaker 1: the same league. So I'm not so sure. I just
Speaker 1: don't get the d o J response to this. I mean,
Speaker 1: do they I guess, as you say, they feel like
Speaker 1: prices are going to go up from here? Yeah. I
Speaker 1: mean we think is businessmen and we look at it
Speaker 1: and we say, you know, g T Mobile has been
Speaker 1: very successful with this strategy, why would they suddenly back
Speaker 1: off of it just because they're bigger. I don't think
Speaker 1: they will. They're a disruptor by nature. I think they're
Speaker 1: going to continue to do that, exactly. And I don't
Speaker 1: think and then they can't compete in the streaming business
Speaker 1: yet either, so they still need something to go after
Speaker 1: the two big guys, right exactly. Um, I think the
Speaker 1: telco's naturally are moving into content distribution, and I really
Speaker 1: applaud that, by the way. I think it's a good move.
Speaker 1: It's getting to be a crowded market. But to get
Speaker 1: back to what we were saying, I don't see T
Speaker 1: Mobile amending their behavior as a marketer in any way.
Speaker 1: But I'm not sure the regulators see that or look
Speaker 1: at the market from that angle. I'm sure that, you know,
Speaker 1: the easy thing for the regulators and from an antitrust perspective,
Speaker 1: as they're just saying, hey, we're going from four to three,
Speaker 1: that's enough for us to block the deal. I'm sure
Speaker 1: that that's the simplistic way to look at it. But
Speaker 1: the reality is, aren't the economics kind of tough in
Speaker 1: the US wireless business, Like, don't they have to merge
Speaker 1: otherwise one of these guys is just gonna blow out
Speaker 1: of the business they do. I mean the it's funny.
Speaker 1: Telecom is a scale business with the capital ass I
Speaker 1: mean really, if you're the big guy in the market,
Speaker 1: you can really sort of call the shots, so to speak.
Speaker 1: And if you're a subscale player like T Mobile and
Speaker 1: to a much greater degree, Sprint, you're in a very
Speaker 1: disadvantaged position. And then as upgrades happen over time that
Speaker 1: it requires a lot of capital, you end up as
Speaker 1: a subscale player getting further and further behind. So I
Speaker 1: think ultimately, if this deal doesn't go through, Sprints gonna
Speaker 1: have to either partner with someone or I thought or
Speaker 1: think they will have to become a regional player. Yeah,
Speaker 1: and Sprint obviously is the one that's the greatest disadvantaged
Speaker 1: therein um you know, it almost seems like the way
Speaker 1: you're telling the story, as you say, we think about
Speaker 1: this as businessman, if it continues to go down this
Speaker 1: road and Sprint continues to suffer, it almost sounds like
Speaker 1: T Mobile could come in and rescue them at at
Speaker 1: the back end, of this and combine anyway. They really
Speaker 1: could in a way, because again, the small gets smaller
Speaker 1: and the big get bigger in a scale market like telecom.
Speaker 1: For T Mobile, though, I think if a deal gets denied,
Speaker 1: you know, ultimately they're going to have to invest more too,
Speaker 1: because if you look at their their spectrum portfolio, those
Speaker 1: air waves where they're offering wireless, they have some big
Speaker 1: gaps there that A T and T and Verizon don't,
Speaker 1: So I think they're gonna need to step forward and
Speaker 1: spend a lot of money just to fill those gaps,
Speaker 1: and then they're going to have the added expense of
Speaker 1: rolling out five g on top of it. So you know, uh,
Speaker 1: even three or five years hence, are they're going to
Speaker 1: have the capital to come back to the table and
Speaker 1: try and buy Sprint. I'm not sure on that one.
Speaker 1: For Sprint, it would make sense for a cable operator
Speaker 1: to make maybe look at them, because in terms of
Speaker 1: moving into adjacent markets, the cable guys are now starting
Speaker 1: to test the waters and wireless. So I don't think
Speaker 1: Sprint is out of options in the wake of this
Speaker 1: deal not going through, But like you, Vince, I started
Speaker 1: look at it in question what the regulators are thanking. So, John,
Speaker 1: I know at Blomberg Intelligence, Uh, you guys have the
Speaker 1: advantage of working with some great experts, including generally who
Speaker 1: does antitrust? What is Jen saying in terms of the
Speaker 1: odds of this and getting approved. So I was chatting
Speaker 1: with Jenn about that, and we agree that the odds
Speaker 1: of it not going through are probably in the range
Speaker 1: of six or so. So fort that it does get
Speaker 1: it okay. It's a tough one to call. It always
Speaker 1: comes down to the wire in a case like this,
Speaker 1: where you know, just as we were talking about, Sprint
Speaker 1: almost can make the failing firm argument of hey, if
Speaker 1: this doesn't go through, we're done. You know, I'm not
Speaker 1: sure they really are in that position where they're completely done,
Speaker 1: and so who knows if they'll win the day there.
Speaker 1: But I think right now we're looking at a forty
Speaker 1: chance that the deal gets it okay, inserting that's probably
Speaker 1: not what the companies were envisioning when they announced this deal. Um. Interesting.
Speaker 1: John Butler, thanks so much for keeping us on top
Speaker 1: of what is going on with the Sprint T Mobile
Speaker 1: deal in the US wireless business. John is a senior
Speaker 1: telecoms analysts for Bloomberg Intelligence. Thanks for listening to the
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