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

On May 11th, 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.

* * *

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.

 However, a third and less obvious factor is the higher rate of return offered by the “unregulated” wireless market. This has led to what seems to be a transferring of investment monies out of the “utility” and “broadband” wireline operations to wireless upgrades. This shift, while enormously beneficial to AT&T’s (and Verizon’s) bottom-line, has profound consequences for the ordinary telecom consumer and U.S. productivity.

 A revealing indicator of this shift in orientation is the data rates of Internet wireline service compared to a wireless network.

AT&T's most advanced “broadband” service, U-verse High Speed Internet Max Turbo, offers downstream (the rate of data flowing to your computer) service at 18.1 Mbps to 24 Mbps; its high-end TV and Internet packages offer up to 410 TV channels but downstream Internet speeds only up to 12 Mbps. AT&T does not advertise its upstream (from your computer to someone else) data rates; they are important for Skype, video conferencing, user-generated content (UGC) videos and other user-initiated options.

 It should be noted that U-verse is not a true broadband or optical-fiber service. Rather, it’s a Fiber-to-the-Node (FTTH) or Fiber-to-the-Premises (FTTP) installation that runs over its copper network, and copper can’t handle more than 25-Mbps. Thus, in the 22 states that AT&T controls, consumers will never get true broadband service.

[From the “you’ve got to love lawyers” joke book, AT&T states: “The speeds identified at are Service Capability Speeds, which are the downstream rates at which your line transfers Internet access data between the network interface device at your home, office or apartment building to the first piece of routing equipment in AT&T's network. Service Capability Speeds should not be confused with Throughput Speed, which is the speed at which your modem receives and sends Internet access data ("Throughput Speed"). These speeds may vary and are not guaranteed.” And we all know what “not guaranteed” means.]

As a point of comparison, Comcast’s highest-end X-Finity service offerings are as follows: 

  • Extreme 50: downstream at 50-Mbps and upstream at 11-Mbps.

  • Extreme 105: downstream at 116-Mbps and upstream at 11-Mbps

[see DSLReports]

However, the real point of comparison involves wireless data rates. The new promotional buzz word in wireless is 4G or “fourth generation” wireless. AT&T claims to offer 4G download speeds of up to 6-Mbps. (The “4G” myth will be examined in a forthcoming article, “The Great ‘4G’ Con Job.”) AT&T’s best wireless rates are approximately one-quarter or so as fast as its U-verse Turbo and nearly twenty times slower than Comcast's most advanced network.

Finally, while AT&T controls 22 states, they have only about 3.5 million high-end “broadband” cable-TV capable customers.

* * *

AT&T is ostensibly pursuing its acquisition of T-Mobile to more effectively compete with wireline broadband. Missing from this discussion is an acknowledgement that as it builds out its wireless network, AT&T is systematically undercutting its higher-performing wireline broadband network. This is most evident in the absence of a recognition by the FCC or the media of the head-to-head competition being waged by AT&T against traditional cable TV providers. U-verse subscribers can get a “triple play” – telephone (local and long-distance), Internet and broadband video (cable TV). 

The best analogy to convey the wireless v. wireline competition is as an old-fashioned horse race. Two nags are facing off, one is drugged, and both are owned by the same person. Guess who gets to pick the winner? It is a rigged horse race in which one of the horses, the wireline, is throttled to let the inferior horse, wireless, look like a meaningful competitor. Of course, this is a well-staged fiction, serving as much the corporate interests of the telecom trust as the popular myth of techno progress. 

There are rumors circulating within the telecom press that the merger is in doubt, that it may be blocked or that FCC will show some real teeth (something it has failed to do for more than a decade) and make some meaningful and enforceable demands on AT&T. This may be wishful thinking.

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