An AT&T/T-Mobile Merger Will Not Lower Prices

As part of its campaign to conquer the wireless market by buying out T-Mobile, the fourth-largest wireless carrier, AT&T is trying to tell anyone who will listen that going from four national carriers to two will actually lower prices.  They even have fancy charts and graphs to prove it. 

AT&T Chart

Nothing of the sort will happen.  Rather, the result will be just the opposite.  AT&T will be sitting along with Verizon to create a national duopoly of big carriers.  They will also gain a monopoly on GSM wireless technology, as AT&T and T-Mobile are the only national carriers that provide national GSM coverage.  But in an effort to distract from this reality, AT&T is using modified charts and irrelevant statistics to make its case.

First, AT&T likes to point to the above colorful chart that shows prices dropping like going down a ski slope in the winter, showing how mergers are always good.  It looks pretty convincing at first glance.  It's the second glance that's more telling.

There are a couple of problems with this chart, and they start with the sources of information AT&T used to make it.  Prominently, one source, a Government Accountability Office (GAO) study, found that revenue for voice services was declining.  It also found that the revenue carriers received from data services was increasing, which is critical given that this merger is all about wireless data.

Further, the bulk of the drop in the Consumer Price Index (CPI) occurred in 1999, 2000, and 2001 and began to flatten as more mergers occurred and completely flattened in 2009 (on page 25 of the report).  In other words, mergers appeared to reduce price drops while competition forced significant prices.  That makes sense because Americans enjoyed far more competition between 1999 and 2001 than they do today as wireless carriers were not nearly as consolidated.  For example, the top six carriers in 2001 held the same market share as AT&T and Verizon would after AT&T gobbles up T-Mobile.  In addition, the two largest carriers in 2001 (Verizon Wireless and Cingular Wireless) had less combined market share than what present day AT&T would have with T-Mobile.  Ironically, the report further warned against mergers by stating “industry consolidation has made it more difficult for small and regional carriers to be competitive.”

You can't figure that out from the chart because AT&T rigged the chart in very clever ways.  First, the dates associated with most of these mergers are the dates they were announced, not when they were completed.  Obviously, prices don't fall on announcements of mergers, so that's misleading. 

Second, AT&T's chart starts on September 2000 and not January 2000, which compresses the time frame (and would be impossible to tell from the chart without investigating the data).  Lastly, the floor of the CPI on AT&T's chart is set at 60 and not 0 where it actually ends.  The effect of this new floor is to essentially give the observer a magnifying glass in order to find falling prices in the decade of mergers.  

Had the chart been done right, that is, stripping away AT&T's modifications, you get another picture of pricing, as the No Takeover Project found when it undid AT&T's changes.  I call this picture the unfiltered truth.  In this chart, we see cross-country skiing, not downhill.  Follow the yellow line straight across -- even with AT&T's data, and prices have leveled out, not dropped.  It looks really flat when you compare the CPI of wireless services with other high-tech industries.

NoTakeOver Project chart

The GAO report, a main source for AT&T's figures, is worth reading because its findings on the wireless industry are not all as rosy as AT&T would like you to think.  GAO recognized the limits to its own data when it cautioned that “industrywide data masks variations in wireless plan prices.  A more detailed analysis of prices charged could help better measure competition and efficiency in the market.”  

In other words, relying on averages across companies tends to miss what may really be happening in wireless price competition.  For example, a Consumer Reports' price analysis survey found that T-Mobile customers pay $15 to $50 less per month than do AT&T customers for comparable plans and services.  This means that while AT&T’s prices raise the industry wide average and T-Mobile’s lowers it, AT&T would lead you to believe that removing T-Mobile will somehow result in lower prices generally.  That is only possible if AT&T intended to lower its prices below T-Mobile’s prices, but it would have no reason to do so if T-Mobile no longer existed.

AT&T isn't simply relying on misleading charts.  They also try to persuade people that prices are dropping by measuring costs on a price per unit (text, megabyte, minute) rather than what consumers actually care about: their total monthly phone bill.

For example, on AT&T's merger website discussing how great prices are in the wireless industry (not AT&T in specific), the company cites statistics such as an 84 percent decline in effective price per text message, and an astonishing 89 percent decline in effective price per megabyte for wireless data.  These numbers all sound great, but they say nothing about AT&T.  In fact, by showing industry averages, AT&T is essentially taking credit for T-Mobile's price competition.  If you did a direct comparison between just AT&T and T-Mobile on these three categories, T-Mobile wins every time as the low-cost alternative.

To give one example, lets look at how viewing prices through the per unit lens could actually mask price increases by looking at the text message plans of AT&T.  Earlier this year, they eliminated their $5 for 200 texts plan and the $15 for 1,500 texts plan in exchange for more expensive plans.  Essentially, AT&T customers no longer have the choice to purchase a $5 or $15 plan and must now must choose between a $10 for 1,000 texts and $20 for unlimited text message plan.  Yes, consumers can now have more texts at a reduced “per text” cost, but every subscriber and would-be subscriber of $5 text plans (and who use less than 200 texts) effectively had their costs doubled while 1,500 text message plan customers received a 33 percent increase in cost.  The size of these increases are questionable given that text messaging costs the industry virtually nothing to provide as a service.  Oh and by the way, T-Mobile no longer charges a seperate fee for text message plans and just includes them on an unlimited basis with its plans.  

The bottom line is AT&T's "evidence" does not credibly argue that its merger, which will create a duopoly, will lower prices.  Instead it actually shows that more competition rather than more mergers were the leading causes of price decline in wireless services.  Looking back at the last time America had a wireless duopoly, not only did you have markets where prices were identical between the two carriers, but you also had prices at levels so high that only the wealthy could afford wireless service.  It was not until Congress began the work of ending the wireless duopoly in 1993 that prices began to fall because of competition.  So while AT&T can manipulate and cherry pick the data to show its merger in a favorable light, it cannot rewrite history in such a way that shows how a duopoly market is good for consumers in terms of price or by any means.

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