In what Arstechnica is calling “Mega-Merger Mania”, the wireless industry has been a hot topic in the news for the past week.  AT&T announced on March 20th their agreement with Deutsche Telekom to acquire T-Mobile USA for $39 billion.  Though the acquisition still faces the hurdle of the government’s anti-trust review, which could take a year to complete, there has been much debate about the possible consequences of the plan going through, and many have taken a stand against it, including (not surprisingly) Sprint, who said it “will fight this attempt by AT&T to undo the progress of the past 25 years and create a new Ma Bell duopoly.”

The acquisition will result in a wireless market dominated by Verizon and AT&T, with Sprint as a struggling third competitor, and it wouldn’t be shocking for Sprint to be completely knocked out of the national game by its rivals.  According to the Benton Foundation’s weekly round-up from March 19-25, “if regulators let the deal go through, AT&T (42 percent) and Verizon (31 percent) would control 73 percent of the nation’s cell phone market.  Sprint, which lost $3.5 billion last year, would be a distant third place with about 16 percent.” 

Though AT&T tried to appease concerns over competition in its press release about the acquisition, there is no doubt that the deal will hurt competition while driving prices up and choices down.  T-Mobile is known for low rates, and the potential acquisition would decrease the pressure to offer low-cost services.  Everything from the number/type of handsets available to the number of competitors in any given market to the affordability of access to spectrum will decline.  Moreover, during this process of decreased competition, AT&T will do everything it can to “grow APRU” (average revenue per user), “reduce churn” (steady-state level of customers), and “expand margins”.  Arstechnica put it wonderfully in writing that these benefits for AT&T “could be recast as ‘you'll pay us more money each month, you won't leave, and we'll make more profit on each dollar you pay.’”

According to AT&T’s press release, “with this transaction, AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns.”  This statement essentially confirms that AT&T has no plans to build its infrastructure out to areas that are not densely populated, so the T-Mobile acquisition is the only way for citizens of rural areas to tap into this powerful nationwide network.

On another note, it will be interesting to see how the deal may affect network neutrality.  The FCC’s net neutrality order from December 2010 (discussed in this blog post) left wireless broadband out of some of the key points, so this acquisition may actually bring wireless net neutrality back into the light. 

The Federal Communications Commission and the Department of Justice will need to approve the acquisition, and if AT&T’s lobbyists succeed, it will go through.  But not without conditions.  The implementation of net neutrality principles and a better deal on data roaming are at the top of my personal wish list.  An article from NationalJournal outlines the arguments for and against data roaming, which would allow subscribers to use their phones even outside their service area.  AT&T and Verizon oppose it and T-Mobile, Sprint, and many other small carriers support it.  The split along what seems to be dominant versus niche service providers speaks for itself: AT&T and Verizon are doing whatever they can to stomp out their competition, and the T-Mobile acquisition is just one stepping stone on their path to a duopoly.

The benefits for AT&T are obvious, but I can’t see any arguments that support the fruition of this acquisition.  It will hurt competition, it will drive monthly wireless bills up, and it will not dramatically increase wireless coverage across the country.