AT&T swallows T‑Mobile in $39 billion deal

And then there were three:

AT&T announced on Sun­day that it has agreed to buy T‑Mobile USA from Deutsche Telekom for $39 bil­lion in cash and stock, in one of the biggest merg­ers since the onset of the finan­cial crisis.

The deal will dra­mat­i­cal­ly bol­ster AT&T’s foot­print in the coun­try, adding an addi­tion­al 46.5 mil­lion customers.

Under the terms of the deal, AT&T will pay $25 bil­lion in cash and the rest in stock. Deutsche Telekom will in turn gain an 8 per­cent stake in AT&T and a seat on the Amer­i­can tele­com giant’s board.

AT&T’s acqui­si­tion of T‑Mobile fol­lows Sprint­’s acqui­si­tion of Nex­tel and Ver­i­zon’s acqui­si­tion of All­tel. If the deal goes though, that will leave only three major car­ri­ers in the Unit­ed States: AT&T, Ver­i­zon, and Sprint.

This deal undoubt­ed­ly will require reg­u­la­to­ry approval. We strong­ly urge the Fed­er­al Com­mu­ni­ca­tions Com­mis­sion and any oth­er agen­cies with juris­dic­tion not to sign off on it. This deal would reduce com­pe­ti­tion in the mar­ket­place and leave the Unit­ed States with just one GSM car­ri­er (Ver­i­zon and Sprint oper­ate CDMA net­works). It will most assured­ly not lead to low­er prices, bet­ter con­tracts, or more open­ness, which are all sore­ly need­ed in the wire­less industry.

We need only look to his­to­ry to see how megadeals have usu­al­ly worked out. With very few excep­tions, they enrich a few at the expense of a great many.

This deal deserves to be torched. Sad­ly, it prob­a­bly won’t be.

UPDATE: Our friends at Free Press weigh in with sim­i­lar con­cerns:

Don’t believe the hype: There is noth­ing about hav­ing less com­pe­ti­tion that will ben­e­fit wire­less con­sumers. And if reg­u­la­tors approve this deal, they will fur­ther cement duop­oly con­trol over the wire­less mar­ket by AT&T and Verizon.

A mar­ket this con­cen­trat­ed — where the top four com­pa­nies already con­trol 90 per­cent of the busi­ness, and two of them want to merge — means noth­ing but high­er prices and few­er choic­es, as the new­ly engorged AT&T and Ver­i­zon exert even more con­trol over the wire­less Internet.

POSTSCRIPT: This deal reminds me of a com­ment that Eric Ear­ling, who used to write at unSound­Pol­i­tics, made in response to a post I wrote four years ago. That post offered a lengthy decon­struc­tion of a flawed bill that would have merged Sound Tran­sit and oth­er enti­ties into a mega-agency gov­erned by a board of trans­porta­tion czars. It includ­ed this line, which was­n’t real­ly meant to be an anal­o­gy, but more of a ref­er­ence to John Stan­ton’s role in con­sol­i­da­tion schemes:

If you appre­ci­ate how lim­it­ed your choic­es are when it comes to mobile phone ser­vice, you’ll love tycoon John Stan­ton’s plan for shak­ing up trans­porta­tion governance.

Hours lat­er, Ear­ling made this attempt at ridicule:

Any­one who has shopped for a new cell phone car­ri­er in recent months — such as this writer — will laugh uproar­i­ous­ly at the fal­la­cy of that anal­o­gy; pauci­ty is not a word that comes to mind. Dear Andrew should try this to exam­ine his “lim­it­ed choic­es” (or here, or here too if he’s still struggling…I punched in NPI’s zip code of 98052 where appro­pri­ate and found ample choic­es from which to select).

I respond­ed with the fol­low­ing:

I find Eric’s attempt at mock­ery to be a pathet­ic fail­ure. If you’ve watched what has hap­pened in the mar­ket you know what I’m talk­ing about. AT&T buys McCaw Cel­lu­lar and renames it AT&T Wire­less, Cin­gu­lar buys AT&T Wire­less, Sprint buys Nex­tel, All­tell buys West­ern Wire­less — look at a time­line of the busi­ness and you’ll see a famil­iar trend of con­sol­i­da­tion. It goes on, and on, and on.

There are only a few major play­ers left and they’re all giant cor­po­ra­tions. Our choic­es have become more lim­it­ed, and that has not been a good thing. Exec­u­tives in indus­try after indus­try keep offer­ing repeat­ed assur­ances that merg­ers will be a boon to con­sumers — but the evi­dence proves that’s just not the case.

And now there’s so few major play­ers left they can be named in one breath: Ver­i­zon, AT&T, and Sprint. There are a few local car­ri­ers that remain inde­pen­dent, but they don’t com­pete with the afore­men­tioned titans in many mar­kets. There are also a num­ber of MVNOs (mobile vir­tu­al net­work oper­a­tors) but these rely on the big three for infra­struc­ture. And of the three, Sprint is some­what smaller.

So we’ve basi­cal­ly got a wire­less duop­oly. Like I said back in 2007: our choic­es are lim­it­ed when it comes to mobile phone service.