Mar 20th, 2011

AT&T has purchased T-Mobile for $39 Billion, immediately making them the largest carrier in the United States. The process could take 12 months to complete, but if and when it does, there could be some pretty crazy implications.

If you take the statements from AT&T and Deutsche Telekom (parent company of T-Mobile) you’ll predictably get bullet points of the positive results stemming from the acquisition:

  • LTE footprint that covers 95% of all Americans (294 million people)
  • Coverage area expands by 46.5 million people from this deal alone
  • Combined base of 130 million customers

That last bullet point is the key: AT&T will immediately leapfrog Verizon as the largest mobile operator in the United States in what will become a two-horse race. Whereas Sprint and T-Mobile previously balanced out the competitive landscape, Sprint will become the odd-man out, the third wheel sitting in the shadow of industry giants.

AT&T customers should enjoy increased coverage and reliability which cannot be ignored, but in my mind this is far outweighed by the potential pitfalls for customers:

  • Less competition means less innovation (T-Mobile USA was the first to launch an Android Phone, a testament to the underdog taking risks whereas the industry giants can afford to play “wait-and-see” or become complacent with their current offerings)
  • Less competition means fewer choices (fewer devices, less service plan variety, etc…)

The story could get worse. Verizon Wireless isn’t ever happy playing second fiddle and they could very likely make a buyout bid for Sprint, meaning most Americans would only have two choices: AT&T or Verizon. That would compound the problems of less innovation and fewer choices. And don’t be fooled by thinking Verizon acquiring Sprint is a pipe dream – it’s a very real possibility.

Just to throw a pipe dream out there, the consolidation of the wireless industry could provide opportunities for third parties to offer pay-as-you-go solutions that license spectrum from AT&T and Verizon. In fact, in a two carrier America, the government could force liberal licensing policies as a requirement for these deals to go through.

You know the “Google Phone” I’ve been wanting? Not the Nexus One. Not the Nexus S. I’m talking about buying a phone from Google that doesn’t include a 2-year contract. Turn it on and it works. While AT&T and Verizon would be fueling the voice and data connectivity, you’d never need a contract from either of them. Pay-as-you-go through a 3rd party. Balance restored (in my pipe dream).

Will the United States allow AT&T to acquire T-Mobile USA? Would they also allow Verizon Wireless to buy Sprint? Where would they draw the line? If the government would allow the former but block the latter, I’d have to imagine Verizon could preemptively make an acquisition offer for Sprint in anticipation that the government would block both deals. That being said, I doubt Sprint would allow for a pubic disclosure of an acquisition if it assumed the deal would be blocked due to anti-competitive reasons – they wouldn’t want to take the blow to consumer confidence.

In my opinion, Deutshce Telecom is the big winner here. They exit a market that hasn’t performed well against the competition yet keep an 8% interest in the new AT&T that, if nothing else, serves as an insurance policy and portfolio diversification. They can go back to the drawing board to pursue their core competencies of European service. Their press release indicates further “innovating” and I know it’s a buzz word, but one you won’t find in discussing the outcome on the AT&T side of things.

If AT&T can import some of T-Mobile’s culture of innovation we may enjoy some unforeseen benefits, but I’m not optimistic. It’s a matter of opinion, but I don’t think AT&T purchasing T-Mobile USA is a good thing for consumers. I think it will stifle innovation, reduce consumer options, and put added pressure on Verizon to continue consolidation that could suffocate competition.

If there is one thing Android has helped prove in the last few years it’s that healthy competition helps accomplish outstanding things. Android leveled the playing field and in 3 short years we’ve seen feature phones all but disappear and smartphones are now the status quo. The carriers each constantly outed new Android devices, pushing each other to raise the bar. If consumers don’t have enough options, carriers will be less motivated to continue progress, and I don’t think anyone wants to go back to the way things were a few years ago.

[Via, thanks to everyone who sent this in!]

[UPDATE: Read the opinion of 7 iPhone fans!]

local_offer    AT&T  T-Mobile