AT&T's Takeover of T-Mobile
Alexander Khan-Duncan

Article
AT&T Inc. and Deutsche Telekom AG said on Sunday they had an agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a $39 billion cash-and-stock transaction.
Under the agreement, AT&T will add about 46.5 million Americans to its 4G Long Term Evolution network, improving the quality of telephone connections, the companies said in a joint statement. The move also cuts the number of major carriers in the US market by 25 percent -- something consumer groups imediately noted.
"This helps achieve the Federal Communications Commission and President Obama's goals to connect 'every part of America to the digital age.' T-Mobile USA does not have a clear path to delivering LTE," the statement reads.
"This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation's future," said Randall Stephenson, Chairman and CEO of AT&T. "
AT&T's acquisition of T-Mobile USA provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies' customers. In addition, it provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some markets, which limits both companies' ability to meet the ongoing explosive demand for mobile broadband," the statement reads.
The statement says that Americans still have other wireless privers to choose from. "The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal," it reads.
But the arrangement leaves just two other major wireless telephone carriers for the U.S. market -- Verizon and smaller Sprint.
Consumer groups immediately complained. Gigi Sohn of the digital consumer group Public Knowledge called the takeover "unthinkable.".
""The wireless market, now dominated by four big companies, would have only three at the top. We know the results of arrangements like this - higher prices, fewer choices, less innovation," Sohn said in a statement..
""The fact that AT&T and T-Mobile would even think of such a combination shows how desperately the U.S. needs both strong network neutrality rules and a competition policy that requires dominant broadband providers to make their networks available to competitors."
"There is nothing about having less competition that will benefit wireless consumers. And if regulators approve this deal, they will further cement duopoly control over the wireless market by AT&T and Verizon," agreed Derek Turner of the media reform group Free Press .
"A market this concentrated -- where the top four companies already control 90 percent of the business, and two of them want to merge -- means nothing but higher prices and fewer choices, as the newly engorged AT&T and Verizon exert even more control over the wireless Internet."
The boards of both companies have approved the deal but it must be approved by regulators. As part of the deal, Deutsche Telekom gets an 8 percent equity stake in AT&T and a seat on its board of directors.

Summary

On March 20, 2011, it was announced that the top four wireless provider T-Mobile USA was set to be purchased by AT&T- The second largest wireless provider- for a price of $39 billion cash-and-stock transaction from Deutsche Telekom. If approved by regulators, this move would add about 46.5 million American customers to AT&T’s wireless phone network, and also cut the amount of major wireless carriers by 25%.

With the U.S. Wireless industry being as highly competitive as it is, the move is sure to be a major game changer within the industry. There is currently four major U.S. wireless providers who 90% of the business. Cutting that down to only three will lead to “higher prices, fewer choices, less innovation," as Gigi Sohn of the digital consumer group Public Knowledge put it.

This move also puts major U.S. Wireless provider Sprint in a bind, since such a high percentage of wireless users in the U.S. will be provided by AT&T and Verizon Wireless, giving the two companies much more control over the industry.

Analysis

The main topic arising from this recent report is the issue of competition in one of the biggest industries in America. Many argue that this move would negatively affect customers, seeing how with less competition, there may be a tendency for the providers to raise prices for their services. The reason given as to why this would be the case is due to a lack of competitors (meaning less viable options for consumers), which would give them higher marketing power.

Looking at the current state of the wireless industry, a report conducted in June 2010 by the FCC found that 92% of all cell phone users are satisfied with their current cell phone service. A big reason for this is due to the varying options provided to customers. With more competing providers to choose from, customers are able to choose a more suitable service for them which is provided from one provider instead of another. With less competition, AT&T will see an increase in revenue even if they keep their current prices constant. One aspect to look at is the cost of the purchase which the company will incur, which may lead them to raise their prices in order to cover those costs, and also increase profits.

Another reason as to why competition benefits consumers a great deal is the control on the prices set by producers. Sure enough, it is the companies who set the price and have a high leverage (since it’s an oligopoly) but the high demand would mean that with more viable options to choose from, Producers would have to adjust their pricing options in order to best suit the costumer and also increase profits. With less producers, customers who feel as though a wireless device is necessary for their daily living would have to choose from a less array of options, possibly leading them to choosing a company which may be less desirable in terms of their budget.

Questions

With their being less options and competitors, will AT&T, Verizon and Sprint try to increase price in order to increase revenue and profit?

Will the options provided to customers be limited due to the wireless companies finding less of a need to increase pricing and feature options in order to entice customers away from their current providers due to the increase on profits and revenue due to the merger?

Sources

National Journal (http://techdailydose.nationaljournal.com/2011/03/att-inc-and-deutsche-telekom.php)
CTIA (http://www.ctia.org/advocacy/research/index.cfm/aid/10323)
Bloomberg (http://www.bloomberg.com/news/2011-04-12/at-t-s-t-mobile-usa-takeover-questioned-by-fcc-official-over-price-impact.html)