CORRECTED: AT&T-T-Mobile merger: Why the FCC should hang up

July 1, 2011

Is mean old Ma Bell back from the grave?

In the proposed merger between AT&T and T-Mobile, it certainly raises the ugly specter of highly concentrated control, fewer consumer choices and higher prices. While various labor groups and legislators have endorsed the deal, it could be a garbled signal for most U.S. cellphone users.

AT&T’s many faults are certainly on the tongues of consumer advocates, who fear that cellphone services would be limited after the merger. AT&T would have even more control over prices and the kinds of phones/service available.

Now holding 27 percent market share, AT&T would gain a 44-percent foothold if the T-Mobile merger is approved by the Federal Trade Commission Federal Communications Commission.

At present, only four companies control 90 percent of the U.S. cellphone market. With a takeover of T-Mobile, AT&T would face off against Verizon and Sprint for dominance, perhaps even triggering a further consolidation of the remaining two smaller players. Would this be good for cell and broadband users?

There’s no guarantee that economies of scale would trickle down to consumers. After all, T-Mobile’s aggressive pricing forced AT&T to offer better plans. Without a strong competitor, prices rarely drop, although that’s not how AT&T is pitching the deal.

“This transaction is all about consumers,” AT&T CEO Randall Stephenson testified before the Senate Judiciary Committee on May 11. “It’s about keeping up with consumer demand. It’s about having the capacity to drive innovation and competitive prices for consumers.”

While AT&T says it invested $75 billion over the past four years to improve its network, it hasn’t been enough to meet demand, especially from iPhone users. The company said its data volume alone has skyrocketed 8,000 percent in that period. With the next wave of tablet and HD video downloads further swamping its system, AT&T said the addition of T-Mobile will help it expand its network capacity, which is so strained that it penalizes high-data users now.

A pro-consumer group called Public Knowledge doesn’t buy AT&T’s “bigger is better” argument and has filed a petition with the FTC FCC opposing the merger.

AT&T, Public Knowledge states, would lose a fierce competitor if it buys T-Mobile. Instead of separate premium pricing for data and voice, T-Mobile introduced a more sensible plan that combined both. Without a T-Mobile nipping at its heels, AT&T may continue to sock it to smartphone customers, whose devices are hobbled without data plans. T-Mobile also helped introduce the open-platform Android system, which opened up application development. Why have one entity (in the case of Apple) control all apps and pricing when you can have tens of thousands?

“T-Mobile‚Äôs aggressive ‘all you can eat’ price for voice and text forced the dominant firms AT&T and Verizon to moderate the premium they exacted from the market,” Public Knowledge stated in its FTC FCC petition. (Disclosure: I have AT&T local/broadband service and a Verizon android smartphone).

A telecom world dominated by AT&T and Verizon would not be a consumer paradise. Virtual monopolies often move in tandem. You need only look back to the oil, steel and money trust days of the late-19th and early 20th century to see what a nightmare that was.

“With the maverick T-Mobile eliminated, it is logical to assume that AT&T and Verizon wireless will act in a coordinated fashion to avoid potentially disruptive competition or avoid engaging in price wars that would undermine their profitability,” the Public Knowledge petition added.

Keep in mind that since its break-up in 1984, the pieces of the old AT&T have been slowly re-consolidating around broadband and cellphone business models. Remember Ameritech and SBC? AT&T has even bid through straw “entrepreneurs” to gain even more of the broadcast spectrum for its network.

As an incentive to approve the merger, AT&T promised to provide broadband to “95 percent of Americans” and build an extensive 4G network. Will this magnanimous gesture offset the potential price increases and lack of consumer options? There’s every reason to believe that AT&T’s huge pricing power will create a new revenue base for its further expansion — and control.

More competition makes the free-market work — not bigger corporations. Do you rue the fact that one cable operator dominates your community? Have you seen prices come down? What about places where there’s only one dry cleaner, mechanic or hospital?

Cellphone pricing is already maddening and difficult to compare. You should be able to easily shop for the best deal on services (especially in healthcare), but commercial over concentration prevents you from doing so. Let regulators and your Congressman know how you feel about competition.This is one call the government shouldn’t drop.

(Corrects earlier version that referred to Federal Trade Commission to Federal Communications Commission — FCC — in all references.)

5 comments

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The government is not going to do anything. They hold the attitude they are untouchable and just as long as the government sits on their backsides; they will be. AT&T harassed us daily, by shutting off our “unlimited Service”
This occurred daily. We told them our contract stated “unlimited” they insisted their new rules called for a 5GB monthly limit. That would mean about two hours of news videos and bang your limit is reached. We used 80 to 120 GB PER MONTH. They had said nothing until we had been some 7 months into our contract. They should have been sued which you can no longer do with their new one-sided contracts. Meanwhile we took their offer to close out. In return we have closed out AT&T for good. This is nothing more than pure greed and wanting to control what is an open and free Internet; because they are forcing their own terms; and telling people who can’t afford to pay more; they will have reduced access to the World Wide Internet; because AT&T has decided who will and who won’t get access. Maybe in two years? When another two million or even 100 million people file complaints with the government agencies, something will be done? As for their new phones you can see people refused to pay the price, so now they’re giving the phones FREE but of course for longer contract terms.

Posted by quad | Report as abusive

My first cell phone was with Cingular. After ATT bought them out, my cell phone just crashed, literally. When I tried to terminate my contract with them, they charged me a termiantion fee, even though I renewed my contract under Cingular. My mother remembers back in the 80’s when they were the telecommunication monopoly, that her bill just kept going up every month, and there was not a thing you could do because you needed a phone back then. I seriously hate ATT and I feel T-Mobile should stay in the market and not just nip at their heels but grab them by the ankles clamp their jaws down and throw them around.

@quad- Quad, for ATT to say their service is “unlimited” and put a restriction in the contract, is legally misleading. You might be able to actually file a complaint with your district attorney. You might be able to get all your money back over the 7 months you were with them. A company can not advertise something as “unlimited” and then close a consumer account due to high usage. Can a buffet tell you can’t eat anymore food when it is unlimited, Can a cable company shut off your cable because you watch it everyday. The answer is mostly not. In situations like this businesses, need to explain limits before the can cut off. With you having a legally binding contract, it is actually their fault. Att by law should have taken the loss of “excess” data use. Most companies know it is illegal to cut off a consumer when they are high volume users and rather than shut off service and face a potential lawsuit, they just slow down their service to unbearable speeds. But legally what they did to you is defined as misleading and false advertising.

For the rest of you that hate ATT and are stuck with them. I would annoy the hell out of them. I called everyday for 3 weeks and complained about the termination fee and finally a supervisor told me they would waive if I would stop harassing their people. :-/

Posted by fjserrato | Report as abusive

Silly argument. As if the only competition for cell phones are other cell phones. Apparently, it never dawns on Reuters that there more ways to make a call than just through cell phones. I can call through Skype, or Magic Jack via my computer, plus use land lines both through my local phone company as well as my cable company. Add on top of that, I can now make calls through my iPad (and soon a whole host copy-cat pads) And those internet calls drastically reduce AT&T’s profit margins. If they raise their rates, it will only push more people to Skype, etc. So there is little reason to fear an AT&T merger with T-Mobile.

Posted by Billw13175 | Report as abusive

I really hope the government doesn’t allow this merger to go through. Competition leads to better service, increased innovation and better prices. Verizon and AT&T have already canceled unlimited plans and are the most expensive providers. We need lower cost, smaller carriers like T-Mobile, Sprint and US Cellular to keep challenging the big carriers with better devices and lower prices.

As a Verizon customer I am afraid that removing T-Mobile from the mix will result in an increase cost of my cell plan. A cell phone is mandatory in this day and age, the only thing that prevents companies from raising prices is competition, because we would all pay more if we had no choice.

Posted by Matt24 | Report as abusive

“Silly argument. As if the only competition for cell phones are other cell phones. Apparently, it never dawns on Reuters that there more ways to make a call than just through cell phones.”

You can’t use your computer or an iPad to make a phone call from most anywhere like you can using a cellular phone with the same level of reliability and convenience. There are many millions of us who need the mobility a cellular phone provides and who don’t wish to pay more for services as a result of reduced competition in the marketplace.

Posted by wilsedw | Report as abusive

[…] According to Reuters: […]

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