The telecom world reeled in shock Sunday afternoon, as AT&T Inc. shattered the weekend calm with news it would be buying T-Mobile USA Inc. from Deutsche Telekom for a cool $39 billion. The boards of both firms are said to have green-lighted the deal, meaning it’s now only up to the U.S. government to decide whether the two giants can merge within the year to form North America’s largest carrier.
While this must make perfect sense on paper, to the lowly consumer this could become a nightmare scenario, with only an iPhone and more coverage areas in it to sweeten the bitter pill for T-Mobile USA customers.
After all, we hear every day that “more competition is good,” because it keeps prices down, boosts innovation, and keeps the industry on its toes. So this AT&T-Mobile stunt? Why it’s the stuff antitrust dreams are made of – and if the U.S. authorities care a smidgen about American consumers they will be picking it apart with a fine tooth comb.
Sure, it’s not all bad – as we mentioned earlier, it makes a heck of a lot of sense on paper. Both firms have GSM technology, both have HSPA+, and AT&T’s mobile operations, AT&T Mobility, has LTE in its future. Without being acquired, T-Mobile USA would be left straggling without a home-made solution to the technology most of the world agrees is set to become the global 4G standard. The deal would tie up all those loose ends in one fell swoop, while adding a significant chunk of change to Deutsche Telekom’s bank balance and causing Verizon Wireless serious heartburn.
Verizon Wireless still has the upper hand when it comes to networks, of course, as it has the broadest LTE deployment to date. So while AT&T Mobility and T-Mobile USA can call their current and combined networks 4G until they’re blue in the face, but they won’t really be until they get to LTE later this year and into next.
It’s worth bearing in mind too, that not all GSM networks are created equal. For instance, AT&T Mobility’s network is not on the same spectrum allocation as T-Mobile USA’s. This means there will likely be some phone/modem issues once the merger takes place, and we’re not sure what this means for T-Mobile USA users who may have to upgrade their devices to fit into the grand scheme. T-Mobile USA does not in a FAQ’s on its website that the deal does not mean that it will soon be carrying the iPhone.
Also, while the new merged network may well be all-covering, all-knowing, all-powerful and far smoother and clearer for both T-Mobile USA and AT&T Mobility customers alike, there are plenty of downsides to the deal – starting with a business school 101: less competition = higher prices.
“With only twp primary carrier options and some second string network competitors, it is highly likely that data rates and ARPUs will increase. Sprint will only have limited affect on the market. But it will have to continue to be very aggressive on pricing to compete, which will also put more pressure on its profits,” analyst Jack Gold told us on Sunday.
The merger will likewise put Sprint Nextel Corp. in a difficult position as the third (and distant) carrier subscriber base. “In my estimation, this will put more pressure on Sprint to merge (and not with Clearwire),” Gold confided. Since T-Mobile USA is now gone as an option, does this mean Verizon Wireless is an option? “If I was Verizon, and the FCC allows the merger of AT&T and T-Mobile, I’d look very seriously at acquiring Sprint, despite some of their challenges,” he affirmed.
So, American consumers can either like it or lump it in terms of phone subscriptions, unless MetroPCS Communications Inc., Leap Wireless International Inc. and U.S. Cellular Corp. can somehow band together to offer some sort of viable CDMA alternative. That would be somewhat “David vs. Goliath” with the aforementioned scraping together just 20 million users to AT&T Mobility/T-Mobile USA’s approximately 127 million. Verizon Wireless has 93.2 million subscribers, as of Q3 2010, and Sprint Nextel holds approximately 50 million subscribers.
That approximately 127 million customers seems like a rather gluttonous piece of the U.S. population pie, and that brings us to our next potential horror story of this deal: Customer service. Does the Sprint Corp.-Nextel Communication Inc. fiasco ring a bell with anyone? Would any of you current AT&T Mobility customers wish your current level of bad rep service on anyone else, let alone an extra 34 million T-Mobile USA customers?
If customer service doesn’t matter much to you, perhaps the next downside will: fewer available devices to choose from. Because – iPhone aside – this merger is set to severely limit the influx of new and cutting edge devices to American shelves.
How so? Well, since the U.S. device market is telco dominated, it’s the carriers who have the “yay” or “nay” vote when it comes to approving new phones. And approving means extensive testing, spending money to put the devices through the operator’s labs, finding space for the inventory on shelves, and having to sell and support them all. Trust us when we say AT&T Mobility will favor a “less is more” approach.
Bottom line? Yes, it will ultimately result in better network coverage for more people, which is a good thing. But in limiting the competition and providing Americans with just one GSM system option, it will also probably result in higher prices, less devices and chaotic customer service – and that’s bad.
“I’m not sure the regulators will automatically go along with this merger. It significantly limits the competition. I’d guess this will undergo quite a bit of scrutiny, with Verizon (and Sprint) pushing back on regulators,” explained Gold. We can only hope.