AT&T’s Plan to Buy T-Mobile is Bad for U.S. Consumers

“We think fundamentally that this transaction is so anti-competitive that there’s no way to fix it that doesn’t result in harm to consumers and the economy.”

– Charles McKee,
Vice President of Government Affairs, Sprint Nextel Corp

When companies announce big acquisitions or mergers, competitors commonly gripe. Their reasons could be jealousy, competitive fear or legitimate concern about a potential monopoly in the making. In the case of AT&T’s proposed acquisition of T-Mobile for $39 billion, the Federal Communications Commission should worry that consumers will suffer the effects of less competition: higher prices and less innovation.

The combined company would be the largest cellular provider in the United States and the only carrier with a Global System for Mobile network. GSM is the world’s most popular standard for mobile telephone systems. It is used by more than 1.5 billion people in more than 212 countries. This ubiquity allows subscribers to use their phones throughout the world and facilitates the wide-spread implementation of data communication applications into the system.

T-Mobile has been experimental and innovative: It employed new technologies, such as UMA, built its own handsets and generally charged lower prices than AT&T and Verizon. UMA enables subscribers to roam between cellular networks and to receive consistent mobile voice and data services.

AT&T implements change at a snail’s pace, sets fees suited to a monopoly and exerts enormous pricing power over its suppliers.

Critics have said that a merger between AT&T, the nation’s second-largest wireless provider by subscribers, and No. 4 player T-Mobile USA would establish an oligopoly of three national carriers — AT&T, Verizon Communications and Sprint Nextel.

AT&T and T-Mobile USA would have a combined customer base of approximately 130 million, compared with Verizon’s 102 million. They would dwarf financially strapped Sprint, which has 49 million subscribers.

Rebecca Arbogast, a Stifel Nicolaus analyst, worries that this merger would start a chain reaction of further consolidations in the U.S. telecom market.

AT&T defends the deal on the grounds that it would:

Benefit consumers through improved coverage to approximately 95 percent of all Americans (up from a current 80 percent).

Help AT&T provide 4G — a more advanced wireless service.

Ease looming spectrum constraints facing both companies.

Keep at least five competitors in 18 of the 20 top markets

Why does AT&T want T-Mobile?

Today’s smart phones, with their hundreds of thousands of applications, contrast starkly with the “horse and buggy” landlines predominate in the 1980s. By 2015, AT&T’s traffic is expected to be eight to 10 times what it was in 2010. AT&T’s mobile data traffic grew 8,000 percent over the past four years. But it did not have enough wireless spectrum and telecom towers to fuel its accelerating growth. AT&T felt it needed to repair its tattered reputation and speedily upgrade its network to become the premium provider.

An AT&T merger with T-Mobile would return AT&T to its dominant status before 1984, when a landmark antitrust settlement led to its breakup. Until then, AT&T, colloquially known as Ma Bell, was a goliath that accounted for 80 to 85 percent of access lines and controlled our communication industry. The antitrust case split AT&T into seven “Baby Bells” and one long-distance carrier, called AT&T.

The Baby Bells outperformed their Ma, then began to merge. In 2005, one of the Baby Bells bought out Ma Bell, renaming itself AT&T.

The breakup of AT&T ushered in an unprecedented telecommunication revolution. It facilitated exceptional declines in telephone rates, increased global Internet connectivity and made extraordinary technical advances. To return the American telephone industry to the hands of two corporate titans would be to repudiate the benefits of competition.