Thursday, April 28, 2011

The AT&T and T-Mobile Merger: Thinking Things Through - Part II

On April 21, AT&T and T-Mobile filed the applications seeking the FCC's consent to their proposal for T-Mobile to be acquired by AT&T.

For those readers who may not be familiar with the FCC's merger review processes, and its historical timeline for ruling on merger applications, don't expect any decision from the FCC this calendar year. I'm not suggesting the government (the Department of Justice included – after all, it is one government we have!) shouldn't be able to reach a decision before next year, I am just predicting it won't.

As I said in a statement issued on March 20, the day the merger proposal was announced, "[l]ike all mergers of this size, the proposed AT&T – T-Mobile combination will get close scrutiny, and it should." I stand by that statement.

I went on to say that:

"My preliminary sense is that the benefits from the proposed merger, with the promise of enhanced 4G network capabilities implemented more quickly than otherwise would be the case, outweigh the costs. Even after the merger, the wireless market should remain effectively competitive with the companies that remain. Over the last several years consumers have benefited from a continuing downward-sloping price curve indicating a substantially competitive market. And it is important to remember that, with respect to many services, the wireless market increasingly is just part of a larger overall broadband market."

Nine days later, in a piece entitled, "The AT&T and T-Mobile Merger – Thinking Things Through," I offered some thoughts on ways to think about the merger as the review process commences. In re-reading the piece, they still seem apropos, so, if you're inclined, I commend them to you.

In the same vein of "thinking things through," I want to call your attention to a claim made by Sprint that strikes me as somewhat odd. Sprint, the third largest wireless provider after Verizon and AT&T, suggests that if the merger is consummated, consumers will pay higher prices for their wireless services. Sprint spokesman John Taylor said the merger would harm consumers and "raise prices."

This is an odd claim coming from Sprint because you would think that Sprint would benefit, as a competitor, if the result of the merger is that the combined AT&T and T-Mobile will charge higher prices than either would charge uncombined. After all, the higher the price charged by one marketplace competitor, the easier it is for other competitors to take away – compete away – the customers of the higher-priced provider.

So, I would take Sprint's crocodile tears alleging the likelihood of higher post-merger prices with a grain or two of salt. This is especially so in the face of the long-running steep declining price curve that, without interruption, has characterized wireless prices in the U.S. over the past 15 years. According to the FCC's 2010 Wireless Competition Report, only Hong Kong has lower rates. Consumers in Great Britain, Germany, and France, Japan and most other countries pay more. In reality, Sprint might well think, and be justified in thinking, the merger will lead to even lower prices and better service for AT&T's and T-Mobile's consumers as a result of the integration efficiencies achieved from combining spectrum resources and otherwise.

But if Sprint really thinks the proposed merger will lead to higher prices for AT&T's and T-Mobile's customers, it should welcome the opportunity to use this higher "price umbrella" to lure away those customers with its own lower prices. Indeed, as Scott Cleland pointed out in a post this week, Sprint features its low prices and "unlimited" calling plans in its advertising. (Scott's piece, "AT&T – T-Mobile in Competitive Perspective," contains a lot of pertinent data relevant to an antitrust-like market analysis.)

It may be that Sprint already is so focused on its role as "leading merger opponent" that its attention will be diverted away from what ought to be its primary job -- fighting for the customers presently served by AT&T and T-Mobile, and, for that matter, by Verizon, and by MetroPCS, Leap, Cox, and the myriad of other regional providers. Indeed, statements from Sprint's officials sound as if the company, in its "leading merger opponent" role, already has adopted a static mindset that will go a long way towards consigning it to back-seat status. Here is spokesman John Taylor: "America could say goodbye to competition in the wireless industry if two companies are allowed to control nearly 80% of wireless industry revenues." The notion that the wireless providers "control" their customers in a sense that renders these subscribers non-contestable is simply wrong. The providers battle fiercely not only to sign-up new customers but to get existing ones to switch. Witness their non-stop ad campaigns – and their marketing expenditures.

So, in thinking things through at this early stage of a long review process, one thought I have is that, as the months go by, I hope Sprint doesn't become so focused on opposing AT&T and T-Mobile in the regulatory and antitrust arenas that the company fails to avail itself of the opportunities to compete in the marketplace. I suspect that while AT&T and T-Mobile executives are heavily preoccupied with the merger themselves, opportunities for Sprint to devise marketplace responses will be plentiful.