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As AT&T and T-Mobile Edge Closer to Merger, What's In It For Customers? Very Little

Telecom companies are rigging the game to make bigger profits on mostly-unregulated wireless, even as giant mergers eliminate most competition.
 
 
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On May 11 th, the U.S. Senate Judiciary Committee held a hearing astutely titled: "The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?" Chairman Patrick Leahy (D-VT) raised a probing concern:

Any acquisition in this industry should result in better coverage and more options for rural customers in Vermont and across the country. AT&T suggests that it would, as the result of efficiencies resulting from the combined spectrum of the two companies. The merits of this argument need to be examined. The certainty of the outcome needs to be explored.

We urge Sen. Leahy and his colleagues, as well as AT&T subscribers, to take up the challenge and ask if the merger will bring better service to wireless customers. If history is a guide, there will only be a marginal improvement in service, far less than what is taking place in other advanced countries and championed as “4G,” and customers will be paying more.

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When AT&T was broken up in 1984, it was America’s largest corporation. In 2010, according to the “Fortune 500” list, the new, reconstituted Humpty Dumpty would rank #3, behind Wal-Mart and Exxon Mobil. If the AT&T/T-Mobile merger were to be approved and the two descendents of the original breakup, AT&T and Verizon, were to be combined, the new Humpty’s revenues would total a whopping $252 billion -- consisting of AT&T ($123 billion; T-Mobile will add $21 billion) and Verizon ($108 billion).  

This snapshot, however, is only half the story. Looking more closely at AT&T’s revenue picture, a revealing story of strategic repositioning begins to emerge, one that chronically results in the erosion of U.S. telecommunications services.

According to AT&T’s 2010 annual report, its revenues were split nearly equally between its wireline and wireless operations. It breaks down as follows:

  • Wireline – 47 percent or $57.7 billion (with voice at 22% or $27.0 billion and data at 25% or $30.7 billion)

  • Wireless – 47 percent or $57.8 billion

  • Other – 6 percent or $6.8 billion

 AT&T’s wireless operations began in 1992 when it acquired a one-third share of the industry innovator, McCaw Cellular; two years later, it swallowed McCaw. In 1996, Southwestern Bell Corporation (SBC) acquired PacBell; two years later, SBC acquired SNET. (In 1997, SBC attempted to acquire AT&T long distance, but the FCC rejected the bid.) In 2004, Cingular, a joint venture of SBC and Bell South, acquired AT&T and, in 2006, the “new” rebranded AT&T acquired Bell South.

In 2006, the first year after the Cingular acquisition of AT&T was completed and the company was renamed AT&T, total revenues were $63 billion. Revenue breakdown was as follows:

  • Consumer wireline – 23 percent or $14.5 billion

  • Business wireline – 26 percent or $16.4 billion

  • Wireless – 34 percent or $ 21.4 billion

  • Other – 5 percent or $6.8 billion

In simplest terms, AT&T’s revenue nearly doubled between 2006 and 2010, and the relative share of wireless increased from just over one-third to nearly one-half. 

The shift in revenue sources reflects a shift in AT&T’s business orientation, from wireline to wireless. It is a shift shared by Verizon [see Divest Wireless Now ] and has been fueled by a number of factors. Obviously, the growing popularity of personal mobile devices, whether cellphones, smart-phones, tablets or other products, is one factor.

A second factor has been a federal deregulatory policy that encouraged the telecoms to shift their investment commitments to the Wild West of wireless from the more regulated wireline, “utility” operations.