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How Even a Failed AT&T/T-Mobile Deal Hurts Rivals
An anonymous reader writes "The attempted merger between AT&T and T-Mobile has fallen on hard times amid antitrust concerns, but there's a potential silver lining for T-Mobile — one that would give them a boost over competitors anyway. Reuters reports that T-Mobile USA would be entitled to a hefty breakup fee including $3 billion in cash as well as spectrum and roaming agreements. 'In a research note, Moody's said that could also lead to a network sharing deal between the two companies, reasoning that it "would make sense given the spectrum that AT&T will have to cede to T-Mobile and the 3G roaming agreement between the two." That would make life especially hard for No. 3 U.S. carrier Sprint, which has been one of the most vocal opponents of the AT&T/T-Mobile deal, going so far as to file a lawsuit. ... Smaller rivals such as MetroPCS and Leap Wireless may be affected even more because T-Mobile is eyeing similar customer segments.'"
So, to re-summarize this story: Because a deal that would have reduced competition has been blocked, competition will increase. But for everyone, not just AT&T.
All that's well and good, but it doesn't change the fact that Deutsche Telekom doesn't want T-Mobile USA. They don't want to run it and are putting the bare minimum into it to keep it going. Since the deal fell through, that means that basically Deutsche Telekom can't sell T-Mobile USA to any of the larger companies (I doubt Sprint would get approval either since it's one of the top 3 companies).
That means that either Deutsche Telekom will try to sell T-Mobile to one of the smaller companies for less than they would have gotten or Deutsche Telekom will simply break up the assets of T-Mobile and sell them off in bits and pieces. The spectrum T-Mobile already has plus what they'll get from AT&T is pretty valuable. Actually AT&T could end up buying all of T-Mobile's assets, leaving just the company and it's customers behind. That could end up being worse for T-Mobile customers than an all out buy out.
The article is hardly a revelation and apparently thinks that greater competition in the low end of the wireless market is bad. But of course greater competition is EXACTLY what stopping this Tmo merger buyout is all about. Furthermore, stopping the buyout is no guarantee that Tmo will stay as a low end carrier. DT has made it very clear that it wants out of the US market, so Tmo most certainly will change in major ways. It may be chopped up. It may be sold to another owner that would have an entirely different business model for it.
Finally, Sprint knew full well the pros and cons for this buyout and lobbying for stopping it. And Sprint's business is not the same as Tmo and does not seek to serve the same market segment as Tmo. Overall the article is plain rubbish.
I said the same thing until I got my Nexus One, the advice I was given was that I didn't know what I was missing. And he was absolutely correct about that, I use my phone regularly to do things that I never would have thought about doing. Not to mention being able to do things like check email when I'm just waiting for an appointment.
Tracking my bus schedules, checking prices and verifying that a shop I want to go is still going to be open if I delay things a bit.
The issue is how customers, particularly consumers, would be affected if the deal, or anything like it, were approved.
We've already seen this movie many times, in the telecom sector and elsewhere. Industry consolidation means rates and fees for consumers go up. Way up. While service and available choices get worse. Much worse. We already have it now but the proposed deal would make things even worse. Oligopoly means providers don't care and don't have to care. Meanwhile, their shills in Congress (including the entire Republican Party leadership, as well as many Democrats) keep talking up how consolidation is essential to enable American companies to compete in the global economy. What horseshit. What ridiculous self-serving horseshit.
Meanwhile, the good ol' boy senior management team makes off like bandits:
Randall L. Stephenson
Chairman of the Board, Chief Executive Officer and President
AT&T, Inc.
Dallas , TX
Compensation for 2010
Salary $1,533,333.00
Bonus $0.00
Restricted stock awards $12,749,977.00
All other compensation $417,410.00
Option awards $ $494,731.00
Non-equity incentive plan compensation $5,050,000.00
Change in pension value and nonqualified deferred compensation earnings $7,096,177.00
Total Compensation $27,341,628.00
1) the article's definition of "hurt" is apparently greater competition from a strengthened Tmobile. This is fallacious because: a) greater competition is not equivalent to "hurt" -- it can actually be beneficial and it certainly benefits consumers and competition is unlikely to be limited to just the low end of the market, b) Tmobile may not be strengthened at all. DT is likely to pocket the $3B and continue to find a buyer for Tmo. Nothing guarantees Tmo's improved position.
But the other piece that is stupid is that, in order to argue that smaller rivals are hurt more, you have to spell out "Compared with WHAT???" The whole rationale that Sprint and other smaller carriers have stated is that the duopoly formed by a gigantic AT&T and Verizon is that they will have so much market power that they will have power over handsets, backhaul agreements, marketing, etc, etc. The duopoly will be unstoppable. These are points that are TOTALLY ignored by the article when it saids that "smaller rivals may suffer more" without the Tmo buyout than with.
So, without Tmo buyout: more competition in the low end MAYBE, but with the Tmo buyout, DUOPOLY that strangles the market, likely eventually squeezing smaller carriers to death. Which situation "hurts more" ?