NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Sunday, March 20th, 2011

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.

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