You have to wonder sometimes what is going on in some PR departments and how solutions are found to tell the public that it’s actually a good thing that they get screwed. The consumer is lost in the $39 billion acquisition of T-Mobile by AT&T and it’s going to be a test for the U.S. antitrust structure and the independence of U.S. government officials as Ma’ Bell is back and challenges the common sense of an entire country.

Let me begin this article with a few quotes from AT&T’s press release:

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,” said Randall Stephenson, AT&T Chairman and CEO. “It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people. Mobile broadband networks drive economic opportunity everywhere, and they enable the expanding high-tech ecosystem that includes device makers, cloud and content providers, app developers, customers, and more. During the past few years, America’s high-tech industry has delivered innovation at unprecedented speed, and this combination will accelerate its continued growth.”

Stephenson continued, “This transaction delivers significant customer, shareowner and public benefits that are available at this level only from the combination of these two companies with complementary network technologies, spectrum positions and operations. We are confident in our ability to execute a seamless integration, and with additional spectrum and network capabilities, we can better meet our customers’ current demands, build for the future and help achieve the President’s goals for a high-speed, wirelessly connected America.”

The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal.

Seriously? In what way does this deal deliver customer benefit? By delivering 4G LTE (which seems to be the only argument for the deal) to T-Mobile at nose bleed AT&T prices? Besides the fact that LTE could come to T-Mobile subscribers as T-Mobile had no clear path to LTE, the acquisition has no obvious benefit to either AT&T customers or T-Mobile customers. T-Mobile customers could care less about LTE anyway since their 3G network connection today  is already three times as fast as AT&T’s current 3G service – and we know that LTE is a paper tiger as AT&T will not enable the full theoretical bandwidth of 10 Mb/s. It would be useless anyway, since you would barrel through AT&T’s bandwidth caps within 3 or 30 minutes (200 MB/2GB total per month).

What is particularly interesting about this deal proposal is the fact how confident AT&T is about it. In 1982, the company agreed to break itself up (which was done in 1984) into one long distance carrier and seven smaller Baby Bell local telephone service providers that served different regional markets. The main purpose was to prevent AT&T from offering poor local service to competing long distance carriers. Today, ma’ bell is back and is stronger than ever. SBC acquired AT&T in 2005 for about $16 billion. Before that, SBC had purchased the Regional Bell Operating Company (RBOC) Pacific Telesis in 1997, SNET in 1998 and the RBOC Ameritech in 1999. SBC changed its name to AT&T in 2005 and even bought BellSouth for $86 billion in 2006.

So, what exactly was the purpose of breaking up AT&T in the first place?

If AT&T can, in fact, acquire T-Mobile, it would add more than 33 million customers to its base of 95.5 million wireless subscribers and about 215 million customers in total. Prior to the acquisition of AT&T, the company was considered to be the 7th largest U.S. company in terms of annual revenue ($124.3 billion in 2010). It employs 294,600 people and is listed by Forbes as the 13th largest company in terms of market cap. Removing T-Mobile from the U.S. carrier market would substantially alter a functioning competitive landscape that has enabled more competition and innovation as large wireless carriers were able to compete with each other on a largely level playing field. As AT&T grows to 130 million subscribers, there is a substantial risk that this will change:

 

1. Poor service

AT&T Mobility has been rated by the American Customer Satisfaction Index as the current worst carrier – a result that has been echoed by Consumer Reports. The size of the company seems to have worked actually against AT&T’s ability to provide competitive service in recent years. T-Mobile was ranked highest in customer satisfaction, while we also know that smaller carriers are typically rated even higher and well above the four largest carriers in the U.S. today. There is no reason to believe that AT&T’s overall service will improve through the acquisition of T-Mobile.

 

2. Higher contract prices

T-Mobile told its customers that it will honor all contract agreements that will be put in place until the ownership of the company changes. While the company also said that it will keep its name for now, the contact price strategy will change to AT&T, which charges substantially more than T-Mobile, especially for data plans. As the competition erodes and T-Mobile vanishes as a discount price carrier and AT&T gains market superiority, there is a significant risk that the company will use its power to increase overall contract prices and/or reduce the provided service level.

 

3. Reduced device choices

T-Mobile has been one of the most creative U.S. carriers in providing some exotic phones, even if it never got its hands on the iPhone (which it will not get at this time either.) Those choices will go away and there is the question how AT&T will use its newfound power against Google and its Android platform as well as Microsoft and its Windows Phone 7 software. Corporate interests are rarely in sync with customer needs or demands and this seems to be a battle field that is well out of sync with the American consumer.

 

4. Slowing network innovation

If the U.S. depended on AT&T for its innovation, we’d be still writing telegrams instead of making phone calls. AT&T was the company that once claimed that the average household does not need more bandwidth than 1 Mbps, it is the company that threatens the future of companies such as Netflix with a bandwidth cap for its broadband customers, it is the company that introduced a new data-centric phone (iPhone 4) with a 200 MB/2GB monthly bandwidth cap, it is a company that still charges extra for wireless text messaging while it is unable to provide enough network bandwidth in dense metropolitan areas. The list goes on and we know that less competition for AT&T will result in less network innovation and poses a threat to the U.S. that it falls even further behind in global data services than it already has. Is there an example of AT&T actually driving innovation for the benefit of the consumer?

 

5. Global connectivity

T-Mobile was a somewhat reasonable way to travel globally, especially to Europe, and obtain somewhat reasonable roaming rates due to Deutsche Telekom’s presence throughout Europe. That is gone with this acquisition and you may want to consider a satellite phone for your next out of country trip. Making phone calls via Iridium’s satellite service is, in fact, cheaper on a per-minute basis than using AT&T’s roaming rates.

 

 

AT&T was forced into a break up almost 30 years ago because of its vertical market dominance. If that was the case, you have to wonder what exactly happened as AT&T’s vertical market reach today is covering not just local and long distance service, but broadband Internet, TV connectivity and wireless cellular service.

It does not take much to see that there is no benefit to the general cellular subscriber in the U.S. because of the T-Mobile acquisition and most other affected segments will suffer as well (handset makers, network equipment suppliers, platform developers). The intent to purchase T-Mobile and justify it with President Obama’s request to take the U.S. population into the digital future is actually a slap in the face of the government as this acquisition is likely to result in the exact opposite.

The acquisition announcement is a challenge for common sense and the antitrust organization in the U.S.

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