T-Mobile customers who expect to get better prices from the proposed AT&T merger should think again, according to a new Yankee Group report.
While the report does acknowledge that T-Mobile customers will benefit from improved coverage from gaining access to AT&T spectrum, it says that these benefits will be outweighed by a wireless market that will be increasingly concentrated with reduced consumer choice and less pressure to keep down prices.
MERGER MANIA: Top tech M&A deals of 2011
Yankee Group's analysis doesn't simply rely on projections of future overall market share after AT&T and T-Mobile merge but also breaks down future market share projections based on market. From this perspective, an AT&T-T-Mobile merger would give AT&T a majority market share in some major U.S. markets including Miami (53% projected post-merger market share), San Francisco (52%) and Dallas (54%). What's more, Yankee Group says that the combined market shares of Verizon and a merged AT&T-T-Mobile will result in the majority of major U.S. cities having "highly concentrated" wireless markets. Today, in contrast, Yankee Group only classifies San Francisco as a highly-concentrated wireless market.
"In these more concentrated markets, consumers and businesses will have fewer choices for wireless carriers," Yankee Group writes in its report. "This in turn reduces price competition among wireless carriers, which over time leaves every consumer in these markets with higher prices. This basic dynamic is present in other markets, such as the airlines, where cities served by multiple national carriers offer lower fares than cities served by a single national carrier."
The Yankee Group also warns T-Mobile customers to not expect that they'll get to keep their lower rates for very long after the merger, as the firm says that "it can reasonably be assumed that pricing for T-Mobile's 33.6 million subscribers will approach the higher rates by AT&T's existing 97.5 million customers over time." The firm estimates that the percent of T-Mobile customers paying lower pre-merger rates will decline to under 50% by the end of 2014 and says that users in major markets such as Boston, Dallas, Houston, New York and Seattle will see increases in their monthly wireless bills after the merger is approved.
IN DEPTH: AT&T, T-Mobile merger widely panned
In its conclusion, Yankee Group further warns that AT&T's T-Mobile acquisition could lead to Verizon attempting to purchase Sprint in order to keep up with AT&T's newly enhanced market share. The result, says the firm, will be a highly concentrated duopoly with increased prices for all wireless users and more regulations for the wireless industry as the government tries to counter the power of a duopolistic wireless market.
"It's only a matter of time before Verizon purchases Sprint and adds Sprint's 51 million subscribers to its 95 million, thereby creating a national duopoly," the group writes. "Yankee Group believes reducing competition in the most heavily populated markets will extend duopoly-style pricing to the national level, resulting in less choice for consumers and limiting competition."
In releasing its report on the proposed wireless merger, the Yankee Group has added its voice to those of the many critics who have contended that AT&T's T-Mobile acquisition would lead to the emergence of a duopolistic wireless telecom market controlled largely by Verizon and AT&T. Opposition to the proposed merger has united both consumer advocacy groups such as the Consumers Union and rival wireless carriers such as Sprint. Sprint CEO Dan Hesse argued that the newly merged wireless company would have "tremendous" power over the wireless market and would be bad for consumers.
Provided it passes regulatory muster, AT&T's T-Mobile acquisition will be the fourth major wireless carrier merger in eight years, following AT&T-Cingular in 2004, Sprint-Nextel in 2005, and Verizon-Alltel in 2008. AT&T would become by far the largest wireless carrier in the United States with more than 130 million subscribers.