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The Impact of AT&T Buying T-Mobile

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A giant corporation in a mildly competitive industry buying a smaller but significant firm never bodes well for prices. AT&T’s plan to purchase T-Mobile still must pass hurdles at the Justice Department (due to antitrust and other issues), the Federal Trade Commission, and the Federal Communications Commission. But assuming it goes through, we can expect higher prices — and better phone and data service.

From a technical and business standpoint, the acquisition makes sense. T-Mobile has lagged as the fourth player in the market for years, behind Verizon, AT&T, and Sprint Nextel, before and after Sprint acquired Nextel. Although its push into HSPA+ (a super-fast 3G flavor being advertised meaninglessly as 4G) put it ahead of the curve for a while, T-Mobile lacks sufficient spectrum and resources to compete on the same footing as the big boys.

AT&T and T-Mobile both use GSM technology for 2G, 3G, and 3G+ (HSPA+) networks, and AT&T has already spent billions to buy new spectrum for a closer-to-real-4G network that will use LTE. From a business standpoint, neither AT&T nor T-Mobile has any peculiarities, like the old networks and unusual technologies that still drag down Verizon and Sprint. (Those two companies use CDMA. Verizon is moving to GSM with its 4G LTE network. Sprint also runs another standard, iDEN, for its Nextel customers, and put its money into WiMax for 4G, which is proving to be the wrong horse to have bet on.)

With the merger, AT&T and Verizon Wireless would even more clearly rank as the giants of the U.S. mobile landscape. Sprint Nextel has many liabilities that prevent it from being nearly as competitive on price or services as T-Mobile is (or was), and it will have a smaller voice and 3G footprint than either a combined AT&T/T-Mobile or Verizon as well. There’s plenty of speculation that Verizon might buy Sprint, but Sprint doesn’t bring enough value to Verizon.

As a customer, you’re not likely to see any price benefit from the AT&T acquisition. T-Mobile has some of the cheapest national pricing for voice, data, and texting plans in any combination, sometimes $20 to $30 less each month than the cheapest competing plan. AT&T’s pricing tends to be in line with Verizon’s, and we’ll likely see most T-Mobile plans age out and new users or purchasers of newer phones be required to switch to higher-priced offerings.

That stinks, because as we already know, carriers charge a mix of reasonable prices for infrastructure-intensive services, like carrying voice and data, and egregious prices that are nearly pure profit for things like texting (which costs as close to zero as one may calculate), and mobile hotspots, which have no additional cost on metered or tiered plans. (Verizon may have a point in charging for a mobile hotspot on the iPhone because it offers unlimited service only on its phone-based data plan, and allots a separate data pool for tethering and mobile hotspot.)

The good news is that AT&T and T-Mobile customers will see an immediate and notable improvement in call quality and coverage area once the merger is approved. Both companies keep users on home networks as much as possible in areas where they provide service. Roaming happens only when one carrier lacks coverage, as was the case with AT&T in large parts of the Midwest and Northeast, among other areas. (In 2009, AT&T spent billions to buy spectrum in rural areas that Verizon was obliged to sell when it bought the number five carrier at that time, Alltel.)

T-Mobile’s 3G network rollouts were accompanied by a lot of high-capacity backhaul to the towers. The company most likely has a far greater percentage of its 3G-and-beyond network with the bandwidth necessary to handle the amount of traffic that’s possible. AT&T had lagged, and is still working incrementally to increase its backhaul capacity. Leaning on T-Mobile’s network will mean faster service for existing AT&T customers.

The two companies promise 95-percent coverage for 4G, which is far more than AT&T’s initial plans (or license requirements) for LTE deployment, scheduled to start in mid-2011. Verizon had already signaled its intent to reach into the hinterlands, bringing 5 to 12 Mbps downstream rates to people in fairly small towns and rural areas as well as the country’s metropolitan areas. Oddly, the greatest competition could be outside urban areas, where small wireless service providers, satellite Internet operators, and AT&T and Verizon would contend for customers.

The bottom line is that this merger will put more money in the pockets of cellular companies as a whole. If you already pay AT&T or Verizon Wireless prices, you likely won’t see a difference in the foreseeable future. But it also makes AT&T into a stronger competitive force against Verizon, which has used its larger network footprint to counter the faster speeds of both AT&T and T-Mobile’s smaller networks.

The acquisition could have an unintended consequence — but AT&T is pushing this message, so it may be wishful thinking. It could cause an increase in competition from regional mobile providers like Cricket, Leap, MetroPCS, and US Cellular, among others. These firms often have cheap prices and advanced features that work only in a limited number of urban areas. Roaming is expensive, if available. Still, many people may prefer the cheaper price as a tradeoff if they aren’t often outside of a home service area. The big providers became behemoths by providing everything to everyone. Niches emerge when the dinosaurs ignore the incoming meteor while furry mammals scurry around their feet.

 

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Comments about The Impact of AT&T Buying T-Mobile

Those of us who use pre-paid cards only (can't afford those data plans) are going to suffer from this. I have had a T-Mobile pre-paid for years and it is a swell deal: to keep the same number for a year is reasonable; AT&T's charges *before* this merger idea, were NOT reasonable - I know, I tried them.

I do actually wish A T &T well but I am highly pessimistic about the future of my pre-paid setup.

I think those of us (retired in our case) who can't write off the exorbitant subscription + data plan costs are the big losers in the mobile phone space.
David Weintraub  2011-03-21 19:07
T-Mobile was on death watch when the iPhone came out and later the iPad. Without access to these devices, they simply couldn't play with the big boys. Verizon also suffered a few pings without the iPhone and iPad, but it had the best network coverage which helped it a lot.

Once it became obvious to T-Mobile that Apple wasn't interested in having a T-Mobile based iPad/iPhone (which would have required a new 5 band chip) T-Mobile couldn't compete. Its options were to combine with Sprint (incompatible networks and still probably not big enough to get Apple interested) or AT&T (compatible networks and AT&T already had the iPhone/iPad.

T-Mobile had been losing customers since the Verizon iPhone came out. Many of its loyal customers simply realized that the T-Mobile iPhone was just not going to come. After all, Apple can sell every single iPhone it makes without T-Mobile.
John Wolff  2011-03-22 07:36
From what I've read thus far, it seems unlikely that AT&T will provide a Prepaid plan for iPhone Users who visit the US for a few days to few weeks at a time. This was a niche that T-Mobile could readily satisfy with their Prepaid SIM card.

It didn't provide us with any data, but did allow us to make local calls send text messages, and receive voice mail.

What's the prospect that AT&T will recognise this need?

None of us want to pay Roaming charges back to distant countries when a simple and cost effective alternative existed.

Cheers -- but sadly, not so cheerful at the prospects of what's ahead :-)

John Wolff
Hamilton, New Zealand
PeterZapfel  2011-03-22 18:52

Question: T-Mobile covers most of Europe (and NZ ?) -- will there be
benefits to AT&T iPhone users traveling in the EU, NZ and Australia
(and wherever else) ? …

I Googled "Deutsche Telecom" but couldn't find any answers, maybe
today's commentator John Wolff in Hamilton New Zealand can give us
some down-under information ?
M. Perry  2011-03-22 16:33
I agree with other posters. T-Mobile's pre-pay plan is a marvelous deal, particularly if you can use Skype for longer, out-going calls. That's what I use.
I suspect the regulators will force AT&T to keep the plan active, so those who'd like to have it or perhaps have it as an option might want to sign up while there's still a T-Mobile. Prepay $100, and you never lose minutes. Combine that low-cost with the merger's combined service area and you'd have a good deal. Tack on any other plans you might need too while they're available.

Unfortunately, the cellular industry seems hostile to offering good deals. I expect to see AT&T look for excuses to gut T-Mobile's pre-pay as soon as they think they can get away with it. We might need to be prepared to fight that.
Mark A. Smith  2011-03-22 17:52
The best thing T-Mobile had going for it besides the pre-paid cards was their commercials. I loved Catherine Zeta-Jones when she was their Spokes-model and you can't beat the legs on the cute young girl who put AT&T to shame in their Apple rip-offs. I'll miss her...
PeterZapfel  2011-03-22 22:05
From CNBC: AT&T/T-Mobile deal = 39Billion$, this seems to be huge;
even humongous considering that Deutsche Telecom is selling ONLY
its T-Mobile(USA) investment, which however are a mere 38,000,000
customers ONLY -- ergo AT&T spends ONLY $ 1,025 per monthly-fee
paying T-Mobile contract. (Total T-Mobile-subscribers = 130 Million
worldwide.) …

Question: T-Mobile covers most of Europe (and NZ ?) -- will there be
benefits to AT&T iPhone users traveling in the EU, NZ and Australia
(and wherever else) ? …

I Googled "Deutsche Telecom" but couldn't find any answers, maybe
today's commentator John Wolff in Hamilton New Zealand can give us
some down-under information ?