5 Despicable Things About AT&T's Mega-Merger With T-Mobile
Stay up to date with the latest headlines via email.
AT&T's $39 billion takeover of T-Mobile USA is yet another in the series of large telecom mergers that over time are slowly reassembling the Ma Bell monopoly of old.
It's now left to federal regulators at the Department of Justice and the Federal Communications Commission to decide what's really best for Americans.
Should they let two national carriers dominate our mobile world? Would giving AT&T and Verizon near complete control benefit smart phone users, create more jobs, make broadband access widespread, and fuel our sputtering economy?
Consolidation of the scale being proposed by AT&T resembles the old railroad and oil trusts of the 19th century. It seems unthinkable to suggest that turning one of the most innovative sectors " back to the future" would help. Why go there?
Yet AT&T wields unparalleled political power in Washington. It stands a good chance of convincing regulators to discard with common sense, stand aside and let this mega-merger sail through on approval.
Here are five reasons that all Americans -- and not just T-Mobile and AT&T customers -- should be concerned by the return of the new, old Ma Bell:
1. The merger would further erode what little competition exists in the wireless market.
The merger hands two companies, AT&T and Verizon, control over nearly 80 percent of the wireless market. That translates to widespread abuses of market power, something AT&T is already known for.
In any other industry, allowing this much concentration, especially without any meaningful oversight or regulatory protections, would be unthinkable. By comparison, the top 10 oil producing firms combined control less than 80 percent of the U.S. market, but this merger will give that level of market dominance to just two companies.
Imagine if ExxonMobil were to merge with BP, Shell, Chevron-Texaco, and Citgo. That would net ExxonMobil the same level of market control as AT&T will have with this deal. And unlike the gasoline market, where consumers can just drive another block to choose another station, wireless users are locked into long-term contracts.
2. The merger would result in higher prices and fewer choices for wireless consumers.
AT&T and Verizon currently control nearly two-thirds of the market and have a long history of raising prices in concert, as they both did early last year by requiring all customers on feature phones to add data plans.
Sprint and T-Mobile (the third and fourth largest of the four national carriers) were meant to exert some competitive discipline on the big two. The average fee for AT&T users ($63 per post-paid subscriber) is some 20 percent more than the amount T-Mobile users pay ($52 per T-Mobile &T subscriber).
You take T-Mobile's lower cost structure out of our wireless equation and the remaining providers have even fewer checks against raising prices on every user. And prices have risen steadily, according to J.D. Power and Associates. In December 1998, the monthly Average Revenue Per User (ARPU) for wireless companies was $39.43. By the end of 2010, this has risen to more than $49. This steady price increase comes despite the fact that carriers' own operating costs have declined substantially, as their profits have risen.
This change will be particularly acute for the 34 million people who now subscribe to T-Mobile. Even if AT&T agrees to honor their existing contracts for their remaining length, they will surely see higher prices when those contracts expire or when they need to buy a new handset or make changes to their contracts.
3. This merger will kill tens of thousands of U.S. jobs.