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What AT&T and T-Mobile Merger Means for Innovation

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In a few minutes, I’m going to get on a Virgin America flight to New York, beginning a week-long stay in the city that was home to me for more than a decade. As I head east, I wonder about the implications of the big merger announced Sunday: AT&T buying T-Mobile USA for $39 billion, of which $25 billion was in cash.

You can read Stacey Higginbotham’s breakdown of the news, along with my analysis of the winner and losers. I was hard-pressed to think if there were any winners in this deal apart from AT&T and T-Mobile’s parent company, Deutsche Telekom.

The Federal Communications Commission must have given an informal blessing to this deal. There is a better than good chance that AT&T will make some nominal concessions in order to get the final approval from the FCC and the Department of Justice. In fact, AT&T executives have been rumored to be boasting about the nod-and-wink arrangement with FCC. It’s a shame!

The impact of this deal getting approval will, more likely than not, have a huge impact on wireless prices. Why? Because on a national level, we now have two near-monopolies in control of our wireless destiny. Verizon and AT&T control roughly 70 percent of the total 296.3 million mobile phone subscribers in the U.S.

According to comScore, Verizon has about 31.3 percent of the total market, and after this deal; AT&T will have 38.8 percent. That is 70 percent of the U.S. market. The third largest player is Sprint, with 11.9 percent of the total market. (Sprint Prepaid also has 4.2 percent of the total subscribers.)

“It is not uncommon but that’s what the regulators need to grapple with,” says Chetan Sharma, an independent wireless analyst, who shared with me his research showing that most mature markets have two to three major players.

While that’s true, in those markets, the telecom regulators tend to have more teeth and tend to have a pro-consumer bent. More importantly, the competitors in many mature markets tend to work on a single wireless technology standard.

Out here in the U.S., we have two distinct standards: GSM (AT&T & T-Mobile) and CDMA (Verizon and Sprint.) The network technologies are supposed to come to come together with Long Term Evolution (LTE) technology, but it’s still going to be awhile before LTE networks become pervasive. What happens in the interim?

Two years ago, when T-Mobile launched its own app store, in jest, I mused out loud that this might be the return of the carrier deck. One of the things I suggested in my post Sunday was that we shouldn’t be surprised if AT&T tries to push Google around over Android OS and pushes its own app store in favor of the app marketplace, and makes people go through its own payment system.

Many industry sources believe Ma Bell isn’t going to muck with the app store, but instead, will be messing around with the price it charges for data. Because we have a near-duopoly in the market place, it’s pretty likely both wireless companies will look to maximize profits on their networks, and as a result, push the prices higher and offer lower data caps.

What that means is that as an app developer, you would have to develop apps for a metered world, where data is expensive for consumers. In other words, the freewheeling culture of downloading apps that helps spawn the new mobile Internet revolution would come to an end. Bluntly put, AT&T is carbon monoxide for this blossoming ecosystem.

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12 Responses to “What AT&T and T-Mobile Merger Means for Innovation”

  1. I’ve noticed on my BlackBerry the network shows that T-Mobile uses AT&T when needed in some areas. I don’t like the idea of this merger. T-Mobile had the est competitive prices and ATT had tried to charge me under SW BELL for a phone service I had never used, and when I tried o get them to solve the problem they told me it was too late the billing already went through, but I know it’s a lie, they could always had let it go. So, I don’t know if the merger does occur that they would try to come back on me for that bill, since I had dropped them nearly or over 7 yrs ago. ATT price structure is a ripoff anyhow. I may just go to Cricket or Boost.

  2. Common Good

    You seem to operate from the assumption that wireless data capacity is unlimited, and thus can be profitably priced in an unlimited fashion. This is no longer possible. In the past when wireless carriers sold unlimited data plans, the devices being connected to their networks, and the speeds at which those devices could operate, effectively placed a natural limit on the amount of data a person could consume in a month. These days, the devices and the networks which connect them have drastically increased the amount of data which can and will be consumed by a customer in a month. The wireless data network is a common good, meaning that the amount one person consumes at any one time affects the experience and access of the other customers trying to use the same resources. The wireless carriers got “addicted,” to selling unlimited data because it was easy and neither the sales force nor the customer had to really understand what a Mb was. Unlimited data made the iPhone possible, but when the iPhone and other SmartPhones arrived with the tens of thousands of apps in tow, the ease of consuming wireless data resources and the propensity to consume vast amounts of wireless data increased exponentially. AT&T waited too long before putting tiered data plans in place, and have suffered from a negative public perception ever since. One might make an argument they should’ve better managed their resources on the supply side, but you cannot ignore the fact that when ANY resource has a capped price for unlimited usage, the usage of that resource will ALWAYS outstrip supply. In this environment, the app developers didn’t need to worry about sloppy code which drove up signaling loads or bloatcode which inefficiently used network resources – who cares? Let the carriers worry about that stuff. The party had to end at some point. The fact of the matter is this – wireless capacity is NOT limitless, and it can’t be priced as such. A magnum of wine costs more than a regular bottle. If you use 1000 Kw hours of electricity, you’ll pay more than if you use 100 KwH. If you use 1000 gallons of water every month, you’ll pay more than if you use 500 gallons. Why do you believe this is a terrible idea for another limited resource? When you starry eyed children of the free internet wake up to that reality, the world will be just a bit more rational.

    • In other parts of this world (Nordics) several operators can on a much smaller population make good money while providing low cost unlimited 3G/4G dataplan to their subscribers.

      => several operators = competition

      Without competition, carriers have no incentive to build properly dimensioned networks. They can save some cash that goes directly to the bottom line.

  3. Patrick

    “In fact, AT&T executives have been rumored to be boasting about the nod-and-wink arrangement with FCC. It’s a shame!” – Wow… what a factless, fear inducing statement.

  4. DarnCellCompanies

    This is BAD business all the way around, even for AT&T. I don’t see AT&T continuing to be viable if their intention is to keep the cost of cell phone and data service high. AT&T blundered how many years ago before they disappeared and then reappeared by putting out an IPO that was garbage @ $29.50/share but was the largest stock offering in US History, even beating out UPS’s previous record. If the same idiots are running the company, it’s almost sure to tank. Consumers need to have what’s in the market today, “choice”. Choosing between two massive carriers as apposed to 4 (1 massive, 3 large) and then all the others is not the way to go. As much as folks love their cell phones, Smartphone’s, and other wireless gadgets, it just won’t be affordable. Not to put to fine a point on an already overused cliché, but this will serve to separate the classes even more than they already are.

  5. Nichole

    Dear Verizon,
    If this AT&T merger goes through and I lose my impeccable T mobile customer service, then sadly you can expect my business to come your way. I had hoped this day would never come, but it looks like I may have about 12 months to come to terms with this.

  6. One thing the DoJ needs to pay close attention to (there are many) is that the most expensive service provider wants to buy the least expensive service provider. Until my wife moved her iphone account from ATT to Verizon, we were paying approximately the same amount for her one iphone as we pay for four phones (including two Android devices) on T-Mo, with comparable minutes. Verizon is a little less expensive. It is highly unlikely that ATT will lower their prices, or maintain T-Mobile’s if the merger is allowed.

    ATT wants to eliminate the main source of downward pressure on prices, and this merger will accomplish that.

    • A key question at least in the near term. And what happens to other resellers of bandwidth in the long run, even resellers of AT&T and Verizon wholesale minutes and data? If “scarcity” is the new paradigm, then the duopoly will likely not do any wholesale deals and keep all the resources to themselves. You think it’s bad now, wait til…