March 23, 2011
The recent news that strongman AT&T is acquiring little man T-Mobile USA for $39 billion, a move that would make AT&T the country’s largest carrier, may backfire on consumers.
T-Mobile, which has 34 million U.S. customers and annual revenue of $21 billion, is known for competitive prices, consumer-friendly practices like options to buy phones with or without contracts, and attractive features like mobile hotspots and Wi-Fi calling in weak-coverage areas. And it has consistently won J.D. Power & Associates awards for customer service. President and CEO of AT&T Mobility Ralph De la Vega said that T-Mobile will keep its current pricing structure, but many analysts suspect otherwise. What they predict is another “too big to fail” duopoly — with two major carriers inflating prices for everyone.
If the acquisition passes though the Federal Communication Commission and Department of Justice’s antitrust division unscathed, AT&T would come out with 125 million customers, well ahead of Verizon’s 101 million, and miles away from the 48 million subscribers to Sprint Nextel. All other mobile carriers combined have less than 10 percent of the market share. Underdog Sprint is already shaking in its boots, issuing a press release saying, “If approved, the merger would result in a wireless industry dominated overwhelmingly by two vertically-integrated companies that control almost 80 percent of the U.S. wireless post-paid market."
But before you run back to your landline, not everyone thinks this will be a bad thing for consumers. Here’s a look at the potential advantages and disadvantages the merger could bring:
- More bandwidth and better service for AT&T and T-Mobile customers. AT&T is working to deliver a 4G network to 46.5 million additional customers when the deal is complete. Who could say no to faster service?
- A July 2010 report from the Government Accountability Office on the wireless industry found that carrier consolidation over the past decade has actually lowered prices for consumers and brought better coverage. They estimate that prices are 50 percent lower now than in 1999.
- If one- and two-year contract subscriptions go up in price, prepaid and pay-as-you-go services could gain popularity. The larger carriers seem focused on their contract subscriber base, as AT&T only has about 11 percent of its customers on prepaid plans. This could create an opportunity for smaller carriers to move in to the prepaid market. Instead of hurting Sprint, the merger could give it an incentive to move into the low-price market as well as help other budget-friendly carriers. Loyal T-Mobile subscribers might also want to switch to an underdog instead of sticking with AT&T.
- Mobile customers will be able to get the iPhone. Some of T-Mobile’s consumer-friendly practices might spill over to AT&T.
- Many analysts anticipate higher prices for the major carriers, as competition shrinks. When it’s all said and done, AT&T would control about 42 percent of the U.S. cell phone market and Parul P. Desai, a spokesperson for the Consumers Union, isn’t happy. “AT&T is already a giant in the wireless marketplace, where customers routinely complain about hidden charges and other anti-consumer practices,” he said in a statement. “From a consumer's perspective, it's difficult to come up with any justification or benefits from letting AT&T swallow up one of its few major competitors.”
- As AT&T focuses its energy on the massive process of approving the deal and subsequently combining the two companies, customers of both carriers could suffer in the interim.
- The wireless industry requires major resources to be able to enter, so it’s unlikely a new national company will suddenly appear on the scene and provide new price competition. Years-long contracts also make it difficult for consumers to jump ship to competitors based on price.
- Sprint’s days could be numbered if it fails to acquire other carriers or finds another way to compete, leaving consumers with even fewer choices.
In AT&T & T-Mobile Merger, Everybody Loses (Gigaom)
The Truth Behind AT&T’s Merger Claims (CNNMoney.com)
AT&T, T-Mobile merger could mean big changes for customers and employees (NJ.com)