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Summary:

Even though the growth of the modern mobile computing market is moving at whirlwind speed, one of the main reasons why it didn’t happen earl…

Pacman AT&T T-Mobile
photo: paidContent

Even though the growth of the modern mobile computing market is moving at whirlwind speed, one of the main reasons why it didn’t happen earlier was because of the control that conservative wireless carriers exerted over devices running on their networks. Should AT&T (NYSE: T) be allowed to acquire T-Mobile, wireless carriers will get even further control over the distribution and makeup of the hardware and software that is changing the way we interact with computers, and they’ll likely charge us more for the privilege.

There’s really nothing else to conclude following a week in which AT&T CEO Randall Stephenson attempted to convince an incredulous Congressman that his company didn’t compete with T-Mobile, which AT&T has proposed to acquire for $39 billion, despite the fact that AT&T lists T-Mobile on a Web site dedicated to evangelizing the deal in a section called “Know The Facts: Competitive Landscape.” When you’re reducing to making those kinds of arguments in hopes of convincing the skeptics, it’s a sure sign that you’re low on ammunition.

The simple truth is that the proposed AT&T/T-Mobile merger would place far too many mobile computing customers under the control of a single corporation that has not shown particular strength in network performance or customer service but is very adept at cutting exclusive deals for the best handsets. There were 302.9 million wireless subscribers in the U.S as of December 2010, according to the CTIA, representing 96 percent penetration. Should T-Mobile’s customers be forced into a shotgun marriage with AT&T, the combined entity would serve 130 million customers.

AT&T says it wants this merger to go through because without T-Mobile, it won’t have enough spectrum to build a national 4G network. What it really wants is the market power that comes from being the biggest carrier in the hottest mobile market in the world.

When AT&T executives discuss the merger, they usually paint a very broad picture of the wireless market in general, describing a fiercely-competitive landscape in which scrappy underdog carriers like U.S. Cellular, MetroPCS, and Cellular South challenge the four main national carriers on a local basis. If you were looking at mobile phones exclusively as voice devices, that might actually be true.

However, when you consider the competitive landscape for data devices, which we can all pretty much agree is the future of the mobile market, things look a little different.

The latest and greatest phone offered by MetroPCS in my area is the Samsung Galaxy Indulge, a version of the Samsung’s Galaxy S models. CNET’s review of that phone states “However, the specs pale in comparison to its more-premium Galaxy S cousins, like the Samsung Epic 4G.” U.S. Cellular is promoting the Samsung Mesmerize, which is basically the same as the Galaxy Indulge with a few more bells and whistles, while Cellular South has the Galaxy S Showcase; same deal.

There’s nothing wrong with those phones, but they are not the kind of devices which will draw customers into your store if you are one of those carriers. Those types of devices–the iPhone, the Atrix, the Thunderbolt–require heavy subsidies in order to make their prices palatable to consumers, which also allows wireless carriers to justify locking customers into two-year contracts ensuring they can’t leave for another provider without paying a hefty fee. Smaller carriers don’t necessarily have the funds or the market reach to compete with the bigger carriers, who can offer deeper subsidizes and make it up on volume. The nascent tablet market is playing out a little differently, but it’s too early to tell whether similar subsidies will be needed to really jump-start tablet demand at the mass-consumer level.

People shopping at carriers other than The Big Four are those motivated by price and coverage quality in their local area, and when they inquire about smartphones they are essentially getting three slightly different versions of the same Samsung Android phone, rather than a choice between competitive devices. (Most carry other low-end Android phones, BlackBerries and even still a few Windows Mobile phones, but BlackBerry has been decreasingly competitive against iOS and Android, even according to Research in Motion’s co-CEO.)

People looking for innovative mobile computers–the type of smartphones and tablets that are fueling the growth of a mobile software and services industry–don’t shop at those carriers. That’s because new phones and tablets debut on the biggest carriers or national chains like Best Buy for obvious reasons: manufacturers, software makers, and application developers are motivated by volume.

So AT&T is proposing that it be allowed to achieve that kind of critical mass (which it already has, in truth) in one fell swoop, as opposed to spending $39 billion on a quality network and growing its user base through a combination of compelling devices and excellent customer service. Should the merger come to pass, the mobile industry would be simply unable to avoid AT&T if they wanted to do business in the U.S.: it would be too limiting otherwise to make business sense.

And Verizon, which has been nearly silent on this issue, is very likely to respond knowing it would be very difficult for anyone to block a major acquisition on its part after AT&T’s proposal was allowed to pass. Sprint (NYSE: S) CEO Dan Hesse basically put his company up for sale during the hearing this week, saying that if the merger went through Sprint would be in a very tenuous position. Verizon and Vodafone (NYSE: VOD), which operate Verizon Wireless (NYSE: VZ) and its 102 million customers as a joint venture, would be the most likely suitors, leaving U.S mobile customers with two choices when they are looking for high-end or even mid-tier data-driven mobile computers, neither of which is known for affordable pricing.

It may well be in the best long-term interests of U.S. wireless consumers to have access to a fast nationwide wireless network, as AT&T argues. But this is not the way to get there: spectrum can be made available from other sources, such as broadcasters, and existing spectrum can be used more efficiently.

The last thing the mobile industry needs just as all the pieces start to fall into place is a narrowing of the choices for how these fabulous devices and applications will connect to the Internet. And the federal government should consider this deal very carefully, because if it is allowed to pass, the net neutrality debate over whether wireless Internet providers should be subject to those rules will triple in magnitude.

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  1. phonepimp248 Saturday, May 14, 2011

    Paidcontent.org shows that it completely does not understand anything about the cellular landscape and should stick to other stories that does not require any mental capacity to write about.
    There are two major reasons the merger should go through…..innovation and coverage. AT&T is not looking to wipe out the competition but to become innovators. The current direction of AT&T internally is to add a wealth of products to help business become more efficent and profitable. These new products will require a lot of bandwidth. Trying to query a SQL server while using Pronto Forms will take a lot of bandwidth but it will allow for companies to conduct business on an iPad at your front door. We complain that other countries are surpassing our educting of our children but why do you think this is happening??? It is because of government stiffling our growth and companies like paidcontent.org to brainlessly try to influence people because they only think they know half the story. I remember hearing that “a little knowledge is dangerous” and that is what we have here!
    Secondly, Broadband coverage in the United States will finally become respectable. I am sick and tired of not being able to use my smartphone at my condo in a rural part of Michigan. The merger will finally give me the ability to get a real and usable broadband coverage up there.
    Paidcontent.org needs to stop bleeting like a lost sheep. There is absoluting nothing that states that AT&T will increase rates at all. They are profitable with their current pricing structure. Yes, there will be no longer a low cost carrier in T-Mobile but DT (T-Mobile’s parent company) already stated that they can’t compete in the US market and are failing. This is directly related to their pricing which does not allow for them to be competitive.
    I can’t people have become mindless sheep and listen to companies like this. I am calling for a boycott of all companies that continue to stiffle innovation and free thinking in our country!!!! 

    1. Really – are you off your rocker? Having two behemoth mobile carriers for the entire US will engender better pricing and more consumer choice? The minute – no, second – any government restrictions are taken off the merger, they will raise prices. And Verizon will match. Poor Sprint and MetroPCS, etc., will slowly die off or get picked off for parts. 

  2.  Paidcontent.org is totally on target with this article. The smaller carriers do not stifle innovation but rather  keep these larger companies on their toes regarding pricing and customer service. Thank you for getting the truth out there!! but rather  keep these larger companies on their toes regarding pricing and customer service. Thank you for getting the truth out there!!

  3. Eric,
     
    You must be completely ignorant of basic economics or a corporate shill for AT&T.  Why in the world would you think AT&T wouldn’t slowly increase costs to consumers once they hold sway over 605 of the nation’s customer base?  Why? Because they don’t say so when they talk in public about the merger?  You really are naive if you think that’s how it works in the real world.
     
    AT&T is a private company driven by profits and a need to satisfy its shareholders, not its customers.  AT&T already have a bad reputation for customer service, and that will likely get worse when they don’t have to compete at all, since they will have a captive audience.
     
    I think you are motivated by personal, selfish reason to want this merger to go through…you said yourself you want coverage at your place of residence.  You should switch to a carrier that has coverage where you live, and not complain about paidcontent.org bringing legitimate points to light. 
     
    I am a T-Mobile customer and while I have terrible coverage where I work, and know full well that the merger would likely give me coverage there, I do NOT want to be an AT&T customer and I definitely don’t want to be a Verizon or Sprint customer, as none of them come close to the quality of phones or great customer service offered by T-Mobile.  If I wanted better coverage I would begrudgingly go to one of those other carriers, but I have good coverage away from work, and like being able to get good customer service when/if I need it.
     

  4. Kevin Horne Monday, May 16, 2011

    on a complete tangent here, but i love how the CTIA has been able to convince even paidcontent.org that cell penetration in the US is “96%”  – you can make anything seem possible when the numerator and denominator have nothing in common.

    Now, back to bashing poster #1, Eric… 

  5. Everything else aside the acquisition would undoubtedly increase both coverage and innovation. I think it is important to agree on these things but what is up for debate, and I am sure taking up most of the discussions with the DOJ, is the issues of competition and consumer pricing. This can be addressed by a number of concessions from AT&T and, once these are proposed, it will be down to them to agree and complete the deal or walk away. If the deal doesn’t go through I believe it will just be a long slow death for T-Mobile where they will compete more with Metro BCS, Cricket etc until some other JV or merger takes place with AT&T and Verizon by that point completely dominating the market without much innovation or leaps in 4G LTE network coverage. The deal should not be viewed in terms of where we are today but in terms of what is happening. I am confident an agreement can be made to deliver better network coverage and innovation without the dramatic increase in prices everyone is fearful of.

  6. Unhappy TMO Guy Wednesday, June 1, 2011

    AT&T is the Devil! Lol. Seriously though, This deal is not godd for the conusmers but you are all forgetting about the workers who be laid off because of this merger. AT&T does not care about customer service nor do they care about their employees. I have a few friends who currently work for them and not one of them had anything good to say about the company. They have been through numerous layoffs and can speak to the heart lessness of AT&T. When you calll an american company for customer service do you want to speak to an American or some guy in India or Panama? That’s exactly where they are sending american jobs…Overseas! This merger should not be allowed to go through period. DT is just trying to tank T-Moblie USA because it is no longer making money for them. They spent soo much effort and money in the wrong areas and now its clear that the mistakes made can not be corrected without a hefty investment, which is something that DT is not willing to do at this time. I pray that this deal does not go through.

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