While further consolidation in US carriers was inevitable, a consequence of flawed spectrum policy, this particular development will eventually lead to a US with only two major wireless carriers, and a big potential downside for consumers. Do the regulators know this? And do they care?
Yesterday’s announcement that AT&T is buying T-Mobile for $39B may not have been an expected development, but such was in fact always a distinct possibility and one that makes a good deal of sense for both parties. There’s only one problem: this merger will eventually lead to an America with only two major carriers. This isn’t necessarily terrible, but the competition generated by three such operators would undoubtedly result in a better deal for consumers. I therefore see a real possibility here that government regulators will reject the deal, even if the probability of such is at best slightly less than .5 – at least as of this writing.
There had been recent talk of a T-Mobile/Sprint tie-up, thus creating that potential Number Three, but such really was a long shot. Sprint’s been struggling for some time under the weight of (a) having to unwind what’s left of Nextel, and (b) its WiMAX alliance with ClearWire. Both of these are clearly albatrosses, with Nextel’s push-to-talk business going away no matter what Sprint does (and likely much of that business going to competitors), and WiMAX of the mobile variety now operating at a severe marketing disadvantage with LTE busting out all over (forgive me, but, hey, it’s finally Spring!). Sprint should otherwise be a relatively easy buy given its spectrum and installed base, but the two albatri are beginning to smell. And Sprint’s stock has done nothing for 18 months, and is down 80% over the past five years. Perhaps the best that can now be hoped for here is a dismemberment of the firm, with the bulk of any value in the company’s spectrum licenses. I bet Verizon’s accountants and lawyers are crunching their respective raw data as I write this.
OK, so that leaves us with two very similar major players – AT&T and Verizon Wireless. They’re both on the same technology track (that being to LTE), and with T-Mobile’s HSPA+ network, which is on its way to 42 Mbps, AT&T now represents a whole lot of competition regardless (it’s interesting how the press release focused so much attention on AT&T bringing 4G to T-Mobile, who already have it; the reality is thus actually the other way around). That’s a key reason why AT&T wanted this deal – an LTE footprint equivalent to Verizon’s is some ways off. The stuff in the release about addressing “spectrum exhaustion” and “service quality” also makes no sense to me – both companies have customers, after all; this isn’t “new” spectrum just for AT&T. But, hey, there’s a lot of wordage aimed just at the regulators here, and those folks deal in law, not reality.
So, what’s the bottom line here? While it could take a year, I think the deal between AT&T and T-Mobile will go through. Customers will see no short-term interruption or changes in service mix as a result. While the regulators may bluster a bit, no matter; prices for everyone will slowly rise and will be blamed by the carriers on inflation even though such will be only a partial reality. Sprint really can’t compete with these two behemoths will have to be sold off in some form. Mobile WiMAX is thus likely doomed as well, but, again, no matter, ClearWire will convert to LTE, as it’s hinted in the past, and thus represent an acquisition target for … Well, we’ll just have to wait and see on that one.
Spectrum policy ultimately made the consolidation of the industry inevitable – too many auctioned spectrum bands created too many small carriers that would of necessity lose as the industry overall grew. Again, my real concern here is whether enough competition will remain to ensure increasing levels of service at decreasing levels of cost to the consumer. And I think we’re all about to lose on that score.
