This article originally appeared in the May 2011 issue of INTERNET TELEPHONY.
It makes perfect sense from a technological and market perspective, but it’s also fraught with regulatory risk; will put 80 percent of U.S. wireless services market share into the hands of just two players; and could – in the process – significantly kill off the drive for competition and innovation in the cellular services arena.
We’re talking, of course, about AT&T’s proposed acquisition of T-Mobile (News - Alert), a $39 billion deal announced in late March on the eve of CTIA, the cellular industry’s biggest stateside confab. Naturally, the deal became the talk of Orlando that week, and it continues to be a source of much interest and debate.
Here’s what people are saying.
A piece on The New York Times website quotes Wall Street telecommunications analyst Jonathan Chaplin as saying that he has “never seen a deal with more regulatory risk be attempted in the U.S.” and that “massive divestitures and concessions” are to be expected. On the other hand, he says, AT&T wouldn’t be attempting to push this deal through if it didn’t hold the strong belief the acquisition would make it through the regulatory approval process without resulting in an untenable position for the wireless giant.
Chaplin in the piece goes on to say that if the deal goes through, it will set up AT&T and Verizon Wireless (News - Alert) as the wireless equivalent of Coca-Cola vs. Pepsi, making other competitors “almost irrelevant.”
Indeed. Although Sprint has long been considered a top-tier wireless provider, but it runs a distant third to Verizon Wireless and AT&T, even if the T-Mobile deal is not in the mix.
“Sprint is the biggest loser in this deal,” Ovum analyst Steven Hartley is quoted as saying in a recent TMCnet story by Ed Silverstein.
“Just as it was beginning to recover from its disastrous previous few years, so it is being further cut adrift from the leaders,” continued Hartley, adding that Sprint had 16 percent connection market share in the fourth quarter of 2010 and was the third largest of the four national carriers.
Considering that, and the fact that rumor had it that it was Sprint that was courting T-Mobile, it’s understandable that Sprint Nextel CEO Dan Hesse has reservations about the AT&T-T-Mobile combination.
“I do have concerns that it would stifle innovation and too much power would be in the hands of just two” players, said Hesse, who shared the stage with AT&T Mobility’s Ralph de la Vega, Verizon Wireless President and CEO Dan Mead, and moderator Jim Cramer of the CNBC show Mad Money, during a CTIA opening day CEO roundtable.
When asked by Cramer whether he agreed with a report that the AT&T-T-Mobile combination offers consumers little to cheer about, Hesse responded: “I have to agree with the Times.”
Of course, AT&T has been pushing the message of how competitive the wireless market place is and will continue to be should the T-Mobile deal be allowed to close.
In its press release announcing the proposed combination, AT&T states: “The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market. For example, in 18 of the top 20 U.S. local markets, there are five or more providers. Local market competition is escalating among larger carriers, low-cost carriers and several regional wireless players with nationwide service plans. This intense competition is only increasing with the build-out of new 4G networks and the emergence of new market entrants.”
AT&T went on to say that a 2010 report from the U.S. General Accounting Office states the overall average price (adjusted for inflation) for wireless services declined 50 percent from 1999 to 2009, and that period saw five major wireless mergers.
But other sources have commented that while AT&T is urging regulators and other industry watchers to look at competition on a market-by-market basis, they also need to consider the larger picture, which puts in stark relief the fact that only a select few cellular outfits offer nationwide coverage and only two – AT&T and Verizon Wireless – have the scale to allow them to introduce the iPhone.
This, of course, helps explain why Mead of Verizon Wireless – which just earlier this year began offering the iPhone – is apparently not sweating the T-Mobile news.
“I think we’re in a very innovative environment,” Mead said at CTIA, “I think we’re going to continue to be that way.”
Mead also noted that Verizon Wireless is sitting pretty when it comes to wireless spectrum, which was a key driver behind AT&T’s interest in T-Mobile. “We’re very confident in our position,” Mead said.
However, AT&T – which has been heavily criticized for weak coverage, particularly in the New York area –clearly feels it’s in need of more spectrum and more capacity, and that’s a big part of what the deal with T-Mobile is all about.
“This transaction quickly provides the spectrum and network efficiencies necessary for AT&T to address impending spectrum exhaust in key markets driven by the exponential growth in mobile broadband traffic on its network,” according to AT&T’s press release, which states that its mobile data traffic grew 8,000 percent over the past four years and by 2015 it is expected to be eight to 10 times what it was last year.
If the deal with T-Mobile passes, AT&T says, customers will benefits from improved voice quality, increased cell tower density and broader network infrastructure.
“At closing, AT&T will immediately gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets,” AT&T says. “The combination will increase AT&T’s network density by approximately 30 percent in some of its most populated areas, while avoiding the need to construct additional cell towers. This transaction will increase spectrum efficiency to increase capacity and output, which not only improves service, but is also the best way to ensure competitive prices and services in a market where demand is extremely high and spectrum is in short supply.”
In fact, Chris Nicoll of The Yankee Group (News - Alert) says that the proposed acquisition highlights “the clear failure of U.S. spectrum management and policy.”
“The U.S. is lacking a clear spectrum plan,” Nicoll recently blogged. “The FCC (News - Alert) promise of 500mHz of spectrum is just that, a promise, but competitive pressures require action now. Any future auctions are too far in the future for operators to plan for now. The smarter move for AT&T was to take what is available today.”
Calling AT&T’s grab at T-Mobile “a bold move to establish its position as the market leader,” Nicoll went on to say that: “The significant spectrum assets and cell sites from T-Mobile match AT&T weaknesses nearly perfectly and the compatible technology choices make integration even to the device level simpler.”
Nicoll at CTIA mentioned to INTERNET TELEPHONY that while the technologies of Sprint and T-Mobile were a mismatch, both AT&T and T-Mobile have a history with GSM-based technology. And he’s quoted in a TechNewsWorld piece saying that AT&T now aims to bring T-Mobile AWS assets into its LTE (News - Alert) network.
"The globalization of standards – GSM, HSPA, UMTS – will make it easy for AT&T to merge the AWS spectrum with its own," Nicoll said, according to TechNewsWorld.
But, as Hartley said to TMCnet, the website affiliated with INTERNET TELEPHONY, AT&T and T-Mobile do need to address some technical issues, such as the fact they operate in different GSM spectrum bands.
Edited by Stefania Viscusi