Who's Afraid of the T-Mobile and AT&T Deal?
If the $39 billion deal AT&T made over the weekend to purchase T-Mobile squeaks by the regulators at the Federal Communications Commission and the Department of Justice's antitrust division, it will whittle down the number of big players in the United States wireless market from four to three: AT&T, Verizon, and the distant third, Sprint.
Before you start howling—"Now there will be just three wireless companies to screw me instead of four"—calm down long enough to read this July 2010 57-page report published by the Government Accountability Office. It found that a decade of industry consolidation had brought lower prices to consumers—"approximately 50 percent less than 1999 prices"—and better coverage. Also, the GAO found, consolidation provided "smoother, more uninterrupted service" in some areas and reduced roaming fees for many customers.
Plus, today's wireless devices can do things the 2000 versions couldn't dream of. Over the past decade, as the industry winnowed itself down through mergers and acquisitions, wireless phones became all-purpose devices, able to run thousands of applications and make speedy connections to the Internet. Many smartphones stowed in consumers' pockets and purses are more powerful than the desktop computers of just a few years ago, making them so popular that Deloitte predicted last year that sales of smartphones in 2011 would just about equal those of desktop and laptop PCs. The appeal of fancy handsets—not underlying networks—drives competition in the wireless industry now, the GAO study states.
T-Mobile's owner, Deutsche Telekom, is exiting the U.S. market because it couldn't find a way to "grow its way out of a distant fourth place in America's cellphone service rankings," the New York Times' Dealbook reports today. Deutsche Telekom paid $50.7 billion in 2000 to buy the service that it rebranded as T-Mobile, which means it's so depressed about its return on investment that it's selling the company at a loss. (T-Mobile and Sprint were reportedly in talks, as well.)
Video: AT&T buys T-Mobile
With T-Mobile out of the picture, will consumers really suffer? Also-rans Sprint (No. 3) and T-Mobile (No. 4) tried to gain market share by competing most aggressively on price. So if the regulators OK the T-Mobile purchase, the good news for Sprint is that it won't have to share the national cheapo-market any longer. Sprint needs such a break. It's been bleeding market share in recent years. According to the GAO, Sprint had 22.8 percent of wireless subscribers in 2006. By 2009, its share had fallen to 16.8 percent, while AT&T and Verizon grew, and T-Mobile grew slightly. Will it lose more share to the low-cost regional brands, such as Leap Wireless and MetroPCS?
In the new wireless order, the AT&T vs. Verizon rivalry, which was already intense, will intensify even more. Both carriers feature the iPhone and have preferred to compete on features instead of price. The acquisition recasts that face-off in a way that may well benefit customers. One positive sign that the deal is good for consumers comes from the bleating of Sprint, which disparaged the deal in a statement because it imagines that it will continue to lose customers. Of course, had AT&T proposed to Sprint, an AT&T-Sprint marriage would have been wonderful in Sprint's eyes.
If the acquisition goes through, what will Sprint do? Will it still compete on price, which doesn't seem to have been its métier? Or will it double down by merging with Clearwire, the over-the-air WiMAX broadband company in which it currently owns a majority stake? Clearwire's other investors—Intel Capital, Comcast, Google, Time Warner Cable, and Bright House Networks—have some pretty deep pockets. If Sprint wants to compete in that direction, it had better hurry up. My colleague Farhad Manjoo tells me that as Sprint continues to shrink, so do its chances of getting the best and newest handsets from manufacturers. Manjoo points to potentially good news for consumers—the addition of T-Mobile's network to AT&T's might mean improved coverage for AT&T's unhappy subscribers in some areas.
If we're going to hypothesize how the merger of the Nos. 2 and 4 wireless carriers will harm consumers, perhaps we should consider how blocking the merger may also harm them, which is the tack that Larry Downes blogs over at CNET. * He writes:
By bringing together complementary spectrum from AT&T and T-Mobile, the combined entity will be able to compete more effectively with Verizon in the 4G space, improve overall network performance, and speed up what the Justice Department described as "encouraging signs" that mobile is beginning to compete effectively with wireline service.