AT&T takeover of T-Mobile: Winners, losers

Impact on pricing is too close to call

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Losers

Sprint is believed to be the principal loser, since it is the third-largest national carrier, with around 50 million subscribers, while AT&T and Verizon are both neck-and-neck, each with more than 90 million.

Jack Gold of J.Gold Associates said the takeover "puts Sprint in a difficult position as the third, and distant, carrier by subscribers. This will put more pressure on them to merge."

Gartner analyst Phillip Redman, however, disagreed with the argument that Sprint is a loser, noting that the takeover could benefit Sprint by allowing it to further focus on low-cost services, which it already emphasizes with an unlimited voice and data plan that it advertises heavily.

Sprint issued a statement in reaction to the takeover, noting that, if the deal is approved, the combined AT&T and T-Mobile "would be almost three times the size of Sprint.

"If approved, the merger would result in a wireless industry dominated overwhelmingly by two vertically integrated companies [Verizon and AT&T/T-Mobile] that control almost 80% of the U.S. post-paid market as well as the availability and price of key inputs such as backhaul and access needed by other wireless companies to compete," Sprint said.

Draws

Consumers of smartphones and voice and data services from T-Mobile won't have to do anything for at least a year while the takeover deal is scrutinized by regulators at the Federal Communications Commission and the Department of Justice. The FCC will look primarily at whether the deal serves the public interest, while the DOJ will ensure that it is not anticompetitive, said AT&T's general counsel, Wayne Watts.

De la Vega noted that some T-Mobile smartphones in the AWS band will be moved to either the 1900 or 850 bands on AT&T, but that issue could be moot, since most customers buy a new smartphone every two years. Even if the deal is approved in a year, it would take one or two more years for a full network conversion, AT&T officials said. About 20% of all T-Mobile customers' phones operate on AWS, Lowenstein estimated.

A major concern for regulators will be whether prices for voice and data will go up. Gold said it is "highly likely" that prices will increase, because less competition means higher prices. Gold was joined by number of consumer advocacy groups, including Free Press, who also worry about price increases.

But Redman said the deal creates a bigger wireless commodity service because of more efficient uses of cell towers and other infrastructure that will lower costs. Whether that cost reduction is passed on to consumers might be a matter for debate, but AT&T is already making a case that in prior mergers it has passed on efficiencies to customers by lowering rates.

In supporting materials, AT&T noted that wireless prices across all carriers declined by 50% from 1999 to 2009 during at least five major carrier mergers. Citing U.S. government labor statistics, AT&T noted that wireless costs dropped from about 73 on the Consumer Price Index in 2000 to about 61 on the CPI at the end of 2010, which is not quite the 50% that AT&T noted, but still a decline.

The five mergers include the February 2004 merger of Cingular into AT&T Wireless. In 2000, SBC Communications and BellSouth merged to form Cingular.

Hays said that even though he believes the takeover would "have little overall impact on prices for U.S. customers," the FCC or DOJ could impose restrictions on the deal, such as limits on price increases for several years. He also suggested that regulators might require the combined entity to eliminate exclusive deals on the latest devices, such as AT&T's earlier deal to sell the iPhone.

With the intense regulatory scrutiny, Hays gave the deal a 50-50 chance of being approved. Other analysts see a higher likelihood of approval, but only after an exhaustive review.

The government review process is the biggest unknown and leaves customers and pricing at a draw from this deal.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His e-mail address is mhamblen@computerworld.com.

Copyright © 2011 IDG Communications, Inc.

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