AT&T and T-Mobile: New Boss, Same As Old Boss

The U.K. Guardian brings us the telecommunication news yesterday of a new cell phone overlord in the U.S.:

In what would be one of the biggest deals since the financial crisis broke, the US telecoms giant AT&T has agreed to buy T-Mobile USA from Deutsche Telekom for $39bn (£24bn), creating the biggest mobile operator in the US.

The deal would bring together the second and third largest mobile groups in the US and will thus face intense regulatory scrutiny. If approved, the merger would shrink the number of major national wireless operators in the US to three from four.

The article warns that the Federal Communications Commission, which has to approve such a merger, has “warned against growing concentration among mobile providers”.  I won’t hold my breath.  The FCC, and the Federal Trade Commission  for that matter, will stamp their feet a little, demand documents, and do a “review”.  Then they will approve it.  In fact, I’ll go so far as to predict that the approval will happen before the internal IT staffs can figure out how to merge the customer billing systems. There’s very, very little in the way of mergers in the last 25 years that Washington won’t approve. The concept of anti-trust is long, long dead.

This merger will create a new monster-sized cell-phone network. (ATT-Mobile?) The new combine will be a 1/3 larger than the current king-of-the-hill, Verizon Wireless. Indeed, there will be only really three networks left, the new ATT-Mobile, Verizon Wireless, and Sprint-Nextel. Consumer choices and options will narrow further. Competition, already weak, will diminish further. AT&T claims in a press release quoted in the Guardian article that:

The firm claims the US wireless industry is “one of the most fiercely competitive markets in the world and will remain so after this deal. The US is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market. For example, in 18 of the top 20 US local markets, there are five or more providers.” AT&T also argued that jointly the firms would provide a better wireless broadband service to rural areas, an Obama administration priority.

Hogwash. The reality is that there are 4 major networks now. In 18 major cities there is one or two very small, local, minor fringe players that really only compete for low-cost voice/text traffic and not for data. Think MetroPCS for example. After this merger there will be only 3 major players and maybe another small, insignificant player in each market.  I doubt that will last long either.  Verizon Wireless, having been toppled from it’s perch as largest will soon be on the prowl for acquisitions.  I can easily see Sprint-Nextel being acquired by Verizon.  If nothing else, the several little local players like MetroPCS will no doubt be sending their investment bankers to Verizon with “buy-me” proposals.  At best, we face only 3 competitors. One of those, AT&T, has proven itself reluctant to innovate or invest heavily to meet the growth in data traffic (can say “throttling on iPhone’s?”).  AT&T’s concept of innovation is to lock-in exclusive deals with phones that consumers want such as the iPhone and then milk the quasi-monopoly.  When the monopoly on iPhone ended and Verizon begins offering competition, it takes AT&T less than two months to respond by purchasing a competitor.

There’s another way that competition is lessened. T-Mobile was primarily owned by Deutsche Telekom, the European telecommunications giant created in 1996 when the German telephone and postal system was privatized.  Suppose T-Mobile were sold to another non-cell phone firm.  That would actually increase competition since DT could provide some market discipline through the threat of re-entering.  It could provide what we call a “potential new entrant” since the parent company could, if it wanted, invest and take the firm in new directions.  Now AT&T doesn’t have to worry about Deutsche Telekom.  DT will retain an 8% ownership stake in the new venture meaning that DT is eliminated as potential future competitor or new entrant.  DT will not enter or re-enter the U.S. market since it would lessen the value of their 8% investment.

It’s also an example of how globalization, which is allegedly about increasing world competition, actually lowers competition worldwide.  On a global basis, AT&T and Deutsche Telekom are competitors. They should be threats to enter each other’s markets anywhere. But in practicality they aren’t competitors. They are partners in a variety businesses. In this case, both the AT&T corporate parent and Deutsche Telekom will be co-owners of the new AT&T Cellular in the U.S.  Partners don’t aggressively compete with each other. They find ways to “live and let live” and to allow each to mutually prosper (at the expense of customers).  The partnerships then extend elsewhere. In Europe, DT is also a co-owner partner in a joint T-Mobile Europe venture with Orange, another European telecommunications firm. So now Orange, which could conceivably try to enter the U.S. market, is very unlikely to consider it. It would upset AT&T which would upset DT which could hurt the Orange-T-Mobile venture.  Got it? It’s all a giant world-wide club – the 21st century version of John D. Rockefeller’s trust arrangements. It’s all designed to create “value” for the “shareholders”, although I suspect the management will siphon off a lot of the value before it gets to the shareholders.

So where’s the “value” come from?  Consumers get ready. It’s your pockets.  The bills will get larger and the discounts scarcer and the customer service worse.  ATT explains in the same article:

The combined company is expected to earn back the price of the deal in the next three years as it makes more money from customers and reduces costs by closing retail outlets and cutting back office, technical and call centre staff.

So AT&T expects to save $25 billion over the next 3 years from “more money from customers” and “reduces costs”.  Look at those cost savings listed. That’s not efficiency. That’s cutbacks in customer service. And probably even more dropped cal…….