The Case Against AT&T&T (Part I)

Public Knowledge unequivocally opposes the proposed merger of AT&T, the 2nd largest national wireless carrier, with T-Mobile, the fourth (out of four) largest national wireless carrier.  If the $39 billion merger is approved, the combined entity would serve anywhere between 42-44% of all wireless subscribers, and together, AT&T&T and Verizon would control nearly 80% of all subscribers, with a weakened Sprint far behind.  So much for the wonderfully competitive wireless market that is the mantra of every debate on network neutrality and broadband deployment!

As others have said, there are no winners in this merger other than AT&T and to a lesser extent, T-Mobile.  And the biggest loser of all is you, the consumer, because you will be faced with fewer choices, likely higher prices and less innovation.  T-Mobile, a feisty competitor that is known for its low prices, unlimited bandwidth and relative openness to new applications and services will be swallowed by AT&T, a company that is famous for high prices, low bandwidth caps and a history of blocking innovative applications (Skype, Sling and Google, to name just three).

The Merger is Not Necessary to Accomplish the Consumer Benefits AT&T Alleges

There will be plenty of time for making detailed, data-driven antitrust and public interest arguments, and Public Knowledge will make many of them in blog posts and filings with the appropriate governmental bodies.  But what strikes me most at this very early stage is that the two alleged consumer benefits of this deal that AT&T keeps promoting could be accomplished without it.  In one case, buying out a competitor makes these benefits happen a bit easier, in another case, it is totally beside the point.   For example:

  • The merger is not necessary to improve AT&T’s network performance

AT&T’s history of dropped calls and slow web surfing are the stuff of legend.  Indeed, T-Mobile is still running ads exploiting that and other AT&T service weaknesses.  So it’s not shocking that AT&T is touting first and foremost that the merger would result in a better, stronger AT&T network.   And while that is technically true, AT&T could improve its network performance without taking out its scrappy competitor.  Instead, it could take some of the $39 billion it is using to buy T-Mobile and invest it in its current network.   It can also develop significant swaths of spectrum that it owns.  Finally, it can use the spectrum it does have more efficiently.  One analyst estimates that between 70-90% of the capacity of AT&T's current spectrum capacity are used less efficiently than it might be if AT&T upgraded to LTE technology across its network.

  • The merger is not necessary to increase deployment to rural areas

AT&T promises that if the merger is consummated, it will ensure that 95% of the country will have access to its network, including some of the most rural areas of the country.  But buying T-Mobile does not increase AT&T’s coverage one bit, as their coverage areas are overlapping.  AT&T already holds licenses that could reach the entire US population, but they have not built out its service areas to do so.  Again it could simply invest some of that $39 billion to increase its coverage in rural areas - no merger is necessary.  The promise of 95% coverage is simply one that AT&T hopes will encourage policymakers to allow the merger to go through.  And we'll save for another blog post how the promises of merging companies are broken and/or never enforced by the government.

Competition?  What Competition?

Much of AT&T’s antitrust argument appears to rest on the claim that the US wireless market is "one of the most fiercely competitive in the world" and that it will remain so if the merger is consummated.    For example, AT&T claims that in 18 of the top 20 of the markets, there are at least five competitors.  But aside from Verizon and Sprint, who are those alleged competitors?  MetroPCS?  Cellular South? Leap? USCellular? For the most part, these are small, regional companies that have spectrum-starved networks, and in some cases are not even using 3G technology, no less 4G.  Some, like Leap, serve a particular market segment (e.g., low income customers).  None of these wireless carriers have the iPhone or the most popular smartphones, because the 4 national carriers have exclusives with smartphone manufacturers.  Comparing the AT&T&TMobile behemoth to those companies is like saying that the corner grocery store competes with WalMart. 

The Myth of Falling Prices

A fourth argument AT&T makes in support of the merger is that according to a Government Accountability Office study, cellphone prices dropped in the ten years from 2000-2009, even with increasing consolidation in the industry.  Thus, the company argues, this merger will not necessarily lead to higher prices. 

One need not dig deeper than an inch to see the flaws in this assertion. In what electronics service do prices NOT decrease over 10 years?   What is important is how fast prices fall, and as consolidation in the industry increased, prices fell at a slower pace.   Remember also that carriers force customers to buy tiers of services, which tend to cause low volume users to overpay, or high volume users to incur overage fees.  Termination fees and other industry fees also add to consumer costs.  And to the extent that the GAO study focused on the price of wireless phone service, who makes phone calls anymore?  Prices for the all-important wireless broadband access haven’t decreased, and the use of bandwidth caps drive up those prices.

A Job Killing Merger

Of all the arguments in favor of this merger, the one that has puzzled me most is that somehow it will be good for jobs.  When was the last time a merger resulted in more jobs and not less?  Uh, never.  The promised $3 billion in savings is going to largely come from personnel redundancies and the closing of retail outlets.  It may be true that the merger will result in some new union members.  But it will also result in thousands of job layoffs at a time the US can least afford it.

No Justification for this Anticompetitive Merger

AT&T would like the conversation about this merger to start with promises and conditions.  But this is a “horizontal” merger of two companies engaged in the exact same business – the kind of merger that should rightfully attract the greatest scrutiny from the Justice Department and the FCC.   Even without the deep national and local market analysis that will soon follow, based just on what we know now, the presumption should be that this merger should be blocked, and the companies should have a high burden to demonstrate that competition and consumers will not be harmed.

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