Thursday, March 24, 2011

The AT&T/T-Mobile Buyout: Whoever Wins, We Lose

Nestled in between New York Times headlines about Libya and Japan (Donate!) this weekend, so small you'd almost miss it, was an unrelated story: AT&T announced its intentions to buy T-Mobile for an estimated $39 billion.

This buyout, if it gets past government regulators, would make AT&T the country's largest wireless provider by a fair margin, and would shrink the number of companies with serious national coverage to just three: AT&T, Verizon, and an increasingly tiny-looking Sprint. Most other wireless providers are regional at best, and they're so far outgunned by the larger companies that they can't hope to compete on the national stage.

I've got plenty of opinions on both Libya and Japan, but as we're not a "new millennium humanitarian crisis" blog, I'll have to content myself with writing about the lesser of these three stories.

Why the buyout?

From the corporate end of this deal, this merge is happening for two reasons: First, T-Mobile's parent company, Deutsche Telekom, doesn't want them anymore. In 2001, the German company paid $51 billion for what was then VoiceStream Wireless in an effort to get in on the ground floor of the US cell phone market, but the US company has never been very profitable for its German parent. Eager to unload assets it doesn't want (and perhaps unwilling to continue paying for the expansion of and upgrades to a nationwide network), Deutsche Telekom would be only too eager to get rid of T-Mobile.

On AT&T's end, the company is primarily looking to (1) unseat Verizon and (2) apply a quick fix to remedy its network's real and perceived issues. AT&T's biggest gain from the sale is T-Mobile's cell towers, which operate using the same GSM technology as AT&T's existing network, so if/when the sale completes AT&T estimates that it will gain in one year the number of towers it would normally take five years to build. They also pick up T-Mobile's more than 30 million paying customers, whose money they can use to further upgrade and expand.

Why's it so bad?

There are cases to be made for why the merger is good for the companies and in terms of technology, but competition will suffer and the consumer will suffer along with it.

The merger leaves only three major nationwide wireless providers - AT&T would have about 42% of the market, Verizon would have 32%, and Sprint would be stuck in distant third with 17%. With how rapidly technology is advancing (and how eager handset and software makers are to appeal to the largest possible market), Sprint's position could quickly become untenable, giving them little choice but to either fold or merge.

In the shorter-term, pricing will suffer. T-Mobile currently offers the cheapest plans available from a nationwide carrier right now, and existing contracts with those customers will likely be honored, but new customers will probably only be able to pick from AT&T's more expensive plans.

Competition between AT&T and Verizon isn't going to help lower prices, either - the Verizon iPhone 4, for example, offers plans and pricing similar to the AT&T counterpart, instead of undercutting it to increase sales. More likely, competition will come in the form of exclusive handsets (a la the iPhone from 2007 to 2010), superior coverage (Verizon took some wind out of AT&T's sails with their successful map ads), and superior technology (Verizon's heavy emphasis on its nascent 4G network).

It also must be said that this deal could be bad for you if you're a current T-Mobile employee, as at least part of AT&T's "cost savings" in this transaction is going to come from eliminating redundant T-Mobile stores in areas where AT&T stores already exist.

So what do we do?

I'm of the opinion that the government needs to regulate the new AT&T heavily or, better yet, block the deal altogether, but if I had to guess I'd say that they won't. The NBC/Comcast merger shouldn't have been allowed, either, and yet it sailed on through with a bundle of conditions and not much else. Net Neutrality legislation is weak where it exists at all, and cable companies (AT&T, in fact!) are beginning to institute data caps on their landline Internet services to go with the caps on their wireless services.

Consumers are going to have to depend on AT&T's good graces in this deal, and I've never known a multi-billion dollar company to have particularly good graces. Why are we so eager to let a handful of huge, profit-driven companies control the flow of information in this country, to control when we can communicate and how? If the government ever needed to step in and protect the consumer, it's now.