AT&T-T-Mobile merger widely panned
- 26 March, 2011 03:44
The proposed AT&T-T-Mobile merger has many different groups standing athwart recent telecom history and yelling, "Stop!"
Although the past eight years have seen a big wave of wireless telecommunications mergers, the latest proposed deal between AT&T and T-Mobile has struck many as going too far. Some quick background on where the industry has been going for the past decade: If AT&T's T-Mobile acquisition gets approved, it will be the fourth major wireless carrier merger in eight years, following AT&T-Cingular in 2004, Sprint-Nextel in 2005, and Verizon-Alltel in 2008. AT&T would become by far the largest wireless carrier in the United States with more than 130 million subscribers. Combine the current AT&T-T-Mobile subscriber base with those of Verizon (94 million) and Sprint (53 million), and you see that just three carriers would account for 277 million wireless subscriptions.
So who is against this further concentration of the wireless telecom industry? As it turns out, a wide variety of groups. On the more predictable side is the Consumers Union, which publishes the popular Consumer Reports journal and which has typically taken a skeptical eye toward corporate mergers in the past. After the proposed Ma Bell-T-Mobile deal was announced this week, the group urged Congress to hold hearings to determine whether such a merger would harm consumers' interests.
"Many consumers are already subject to high phone bills and cannot easily switch carriers for a variety of reasons such as early termination fees or the inability to get the device of their choice," Parul P. Desai, policy counsel for Consumers Union, said this week. "Allowing AT&T to purchase T-Mobile will result in nearly 80 per cent of the market being dominated by two wireless carriers. Such concentration cannot be good news for consumers."
On the less predictable side of things, The Economist magazine, which is typically a fan of free-market capitalism, said that the merger shouldn't just be scrutinized but stopped altogether. The magazine urged the government instead to undertake reforms to the wireless industry that would significantly lower barriers to entry for new players to compete with the big incumbents.
"It would be far better if the Federal Communications Commission ... and the Department of Justice blocked the T-Mobile merger -- and tried to reform the market instead," the magazine wrote while adding suggestions such as "allowing other firms to buy bulk wireless capacity from AT&T and resell it, by freeing up underused spectrum and by making local phone and cable firms share their wires."
AT&T rival Sprint, which had long been rumored as a potential buyer of T-Mobile, was also understandably hostile to the deal. Sprint has been slowly but surely rebounding from a disastrous period where it lost 5 million total wireless subscribers between 2007 and 2010. At its lowest point in the third quarter of 2008, Sprint lost a whopping 1.3 million wireless subscribers, and for all of 2008 Sprint lost more than 4 million wireless subscribers. Although Sprint has recently started adding wireless subscribers again, the AT&T-T-Mobile deal could put the carrier at a further disadvantage as it tries to regain the market share it's lost from Verizon and AT&T over the past five years.
Sprint CEO Dan Hesse said this week that the company planned to submit its concerns and objections to the proposed deal to Congress in the near future, noting in particularly that the newly merged wireless company would have "tremendous" power over the wireless market.
"If you take a look at the market power of the big two, in postpaid, which is contracts, the way most users think of the business, in 2005 the big two had 52 per cent market share," Hesse told CNBC's Jim Cramer this week. "They've expanded that now with acquisitions in the last few years, up to 67 per cent. If this transaction goes through you're talking 79 per cent, or roughly 80 per cent of the market controlled by two companies. I think that's a little too much -- too much concentration."
And finally, early indications are that the FCC is in no mood to rubber-stamp a merger that will give AT&T even greater power in the wireless market. An anonymous FCC official told The Wall Street Journal this week that there was "no way the [FCC] chairman's office rubber-stamps this transaction. It will be a steep climb to say the least." And although the FCC has remained officially silent regarding the proposed merger so far, AT&T is already expecting that the commission will demand a hefty pound of flesh that will require giving up large chunks of spectrum in exchange for approval. But even if the AT&T-T-Mobile deal wins approval from the FCC, winning approval in the court of public opinion is another matter entirely.
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