AT&T’s announcement of its intention to buy T-Mobile USA from Deutsche Telekom sent ripples through the wireless telephony industry, and focused attention on the landscape it would leave in its wake. While many recent high-profile mergers and buyouts have squeaked past the Department of Justice and Federal Communications Commission, the size and influence of the combined company have left many wondering if the buyout would be approved.
AT&T and T-Mobile together have 42 percent of all wireless subscribers in the United States, more than 10 percent more than Verizon Wireless, the current largest provider. Furthermore, it would reduce the number of major nationwide wireless companies from four to three. And given that those four hold at least 75 percent of the market in nearly every major city, the FCC would “have to shred the old rule about never going from four to three leading firms,” said Shane Greenstein, a professor of management and strategy. “Traditional antitrust analysis focuses on the protecting the competitive process, not the welfare of competitors per se. This reduces the degree of competitiveness, so it touches on a traditional concern.”
AT&T claims the merger would benefit itself and customers in five ways, according to a slideshow presentation on the buyout (pdf). Bullet points one and five primarily focus on shoring up AT&T’s stressed network in high-use cities like New York and San Francisco—“further improve the customer experience” and “seize new opportunities”—providing a cushion for numbers two through four—“grow ARPU”, “reduce churn”, and “expand margins”. (ARPU is average revenue per user, and churn is the rate at which customers leave the company.) Translated from wireless company-speak, they mean each customer would pay more, be less likely (or able) to leave AT&T for another provider, and generate more profit for the company. While these goals would certainly improve AT&T’s bottom line, they would not be customer-centric developments that foster competition.
AT&T is also seeking to buy T-Mobile for its spectrum licenses. The airwaves on which wireless companies transmit are becoming increasingly scarce. There’s a fixed amount of spectrum available—the range of radio frequencies from 3 kHz to 300 GHz may seem like a lot, but it’s nearly completely allocated (pdf). New entrants into wireless markets face a difficult challenge in that there’s little to no spectrum available. “There is simply no way for additional entry after combining the ownership of spectrum” of AT&T and T-Mobile, Greenstein said. “So such a merger potentially imposes irreversible harm.”
It’s clear that regulatory approval is far from a sure thing. Though AT&T cites a Government Accountability Office report that says inflation-adjusted prices dropped by 50 percent between 2000 and 2010, very little of that may be attributable to mergers. Furthermore, the same GAO index shows little in the way of downward movement if the axes are scaled appropriately.
“I just don’t see how AT&T can get it through without many conditions, if it gets through at all,” Greenstein said, concluding that that the company faces “a high legal hurdle.”
Photo by Todd Kravos.