The government scored a huge victory for consumers when it defeated AT&T’s acquisition of T-Mobile, (s t) preserving a wireless landscape with four nationwide competitors. Now that the dust has settled, though, there’s a lingering question in my mind: Was the fight worth it? Would we have been better off if the AT&T-Mo saga never happened, or are we better off that AT&T tried and failed?
It’s easy to reach the former conclusion if you tally up the enormous amounts of time, effort and money that AT&T, its allies and its opponents wasted fighting for or against the merger. The Hill reported on Monday that AT&T alone spent $20.2 million lobbying lawmakers and regulators in 2011. Operators like Sprint (s S), industry associations like the Rural Cellular Association and numerous public interest groups also devoted considerable resources to opposing the deal before regulators and in the courts. AT&T-Mo weighed down the Federal Communications Commission’s docket for the greater part of a year, and the U.S. Department of Justice spent taxpayer dollars forming its antitrust case against the carriers.
AT&T and T-Mobile could have directed all of that effort and cash to building more 4G networks and expanding the ones they already had. Instead, their consolidation drive actually stymied mobile broadband. On Wednesday Cellular infrastructure maker Ericsson (s eric) reported a huge drop-off in North American revenues for the fourth quarter, largely because AT&T and T-Mobile practically stopped investing in their networks while they waited on the merger’s outcome. Instead of fending off the outsized ambitions of Ma Bell, the FCC could have dealt with any number of pressing regulatory issues on its plate.
Still, I would argue that we gained plenty from having fought that fight. Those gains may not be as tangible as a new network or cash in the bank, but here are three reasons why the merger’s failure shaped the U.S. wireless market for the better.
1. We know what to watch for
Sprint CEO Dan Hesse summed it up best in an interview last year right before the merger was killed:
When AT&T announced its intention to take over T-Mobile USA, it made me realize the industry has been gradually moving toward being a duopoly and how tenuous the competitive situation is in the U.S. wireless industry. . . . [Before the merger was announced] I could see this gradual creep in size and market dominance of the big two — growing gradually each year, though not to the extent that it became alarming. But the attempted acquisition of T-Mobile set off all sorts of alarms and had you step back and notice what’s been happening each year for a number of years.
With four nationwide operators it’s easy to reach the conclusion that we have a vibrant competitive market, but the reality is there hasn’t been such a thing as a “big 4” in the industry for some time. While Verizon Wireless (s vz) and AT&T have grown considerably in the past five years, Sprint has actually shrunk in size and T-Mobile’s growth has been fitful.
As Hesse points out, there is now such a gaping difference in size between the No. 2 and the No. 3 operators that “big 2” has become a much better characterization of the industry’s top tier. We may not face quite the duopoly that Hesse claims, but there is no questioning that AT&T and Verizon wield enormous power. It took AT&T’s trying to swallow up one of the remaining national carriers for many people, including myself, to realize just how lopsided the market had become.
Regulators, lawmakers and a large part of the public now realize that preserving what remaining competition is left in the U.S. wireless market is vital. Just as AT&T can’t buy T-Mobile, Verizon can’t buy Sprint, and either would face stiff opposition if it tried to pick up a smaller regional operator like MetroPCS (s PCS) or Leap Wireless(s leap). And AT&T and Verizon now know better than to try.
2. Regulators have grown fangs
AT&T approached the merger with the attitude that it was inevitable, and it appeared to be right, until the Justice Department filed its antitrust lawsuit on Aug. 31. Much to AT&T’s shock, the government’s free-market cops were in no mood to negotiate. They said the deal was simply anticompetitive and had to be stopped.
The FCC appeared docile at first, but it began asserting itself after the DOJ stepped in. In November, the FCC recommended the deal be killed, and it released a damning report refuting every single claim AT&T made about the merger’s supposed benefits. When a desperate AT&T tried to play the DOJ and FCC against each other, neither agency fell for the carrier’s tactics. Within a month the deal was dead.
After a decade of nearly unfettered consolidation in the wireless industry, regulators took a huge stand against the most egregious anticompetitive deal of them all, showing AT&T absolutely no deference. What’s more, those regulators don’t appear to be returning to hibernation.
The DOJ is now looking into Verizon’s purchase of the cable companies’ unused 4G spectrum. Normally the Justice Department steers clear of deals only involving the transfer of airwaves, leaving licensing matters to the FCC. In a recent interview, John Hane, a
n antitrust communications lawyer with Pillsbury Winthrop Shaw Pittman, said that we may be witnessing the rebirth of much more aggressive DOJ, one that is willing to examine every telecom deal through a trust-busting lens.
3. Dormant spectrum is finally being put to use
Though AT&T has claimed that the U.S. is facing a spectrum crisis, the deplorable fact remains that it and many other operators have been hoarding frequencies for years. AT&T, Verizon and the cable companies won their advanced wireless service (AWS) licenses at auction in 2006 but haven’t built a single commercial cell over those airwaves for six years. Clearwire (s clwr) and Sprint have nearly 100 MHz of unused 2.5 GHz frequencies they have owned for a better part of a decade.
But as AT&T-Mo died, an astonishing spate of license sales followed. Verizon made a deal with the cable providers to buy their SpectrumCo licenses, giving Big Red a goldmine of 4G airwaves over which it will expand its LTE network. AT&T may have failed in its bid for T-Mobile, but it did land Qualcomm’s 700 MHz FLO TV spectrum, which AT&T has also earmarked for LTE. As part of its breakup fee from AT&T, T-Mobile got a healthy chunk of AT&T’s own AWS licenses, which T-Mobile can put to immediate use in expanding its HSPA+ network.
I do agree with the operators that those airwaves won’t be enough. To meet the colossal demand for mobile broadband, the FCC will have to identify and repurpose hundreds of megahertz of spectrum for 4G use. But the carriers have no business complaining about the oncoming data tsunami when they aren’t using the spectrum they already own. But now it looks like they will be forced to use them. If operators can no longer buy networks from their competitors, they will have to build them.