The business press continues to be skeptical in its second-day coverage of AT&T’s $39 billion deal for T-Mobile. That’s a good thing.
The New York Times’s headline all but says the deal would be bad for consumers:
For Consumers, Little to Cheer in AT&T Deal
The lede is good:
The $39 billion proposed merger of AT&T and T-Mobile could save the companies a lot of money. For everyone else, it could cost a lot of money.
And it puts this up high:
The bottom line, they said, is that competition is likely to suffer, leading to higher prices and less innovation. That is because the deal would leave just AT&T, Verizon Wireless and the much smaller Sprint to divide up the voracious smartphone market — with the AT&T and T-Mobile union likely to dominate the market.
“Without some of the smaller competitors, you won’t have the competitive pressure that leads to lower prices and innovations and offerings among the carriers,” said Paul Reynolds, electronics editor at Consumer Reports.
Again, the merger would create a behemoth with 42 percent of all cellphone customers in the United States. With Verizon, the top two companies would have a stunning 73 percent of the market, up from 40 percent in 2002 (although, as the Financial Times reports, AT&T would likely have to divest at least some customers and assets to gain regulatory approval). That’s effectively a duopoly, especially when the only other major company has just 16 percent and is losing hundreds of millions of dollars a year. And the consolidation hasn’t been through organic growth. Most of it has been through acquisitions, like AT&T’s $86 billion buyout of BellSouth in 2006.
I have a quibble here with the Times:
Improved service and network quality could be another boon. T-Mobile and AT&T use the same underlying GSM cellphone technology, which should reduce any friction of blending the two networks. AT&T could take advantage of T-Mobile’s latest high-speed network, in which the company has invested millions to upgrade and bring online. By adding T-Mobile, AT&T will gain cell sites equivalent to the number it would have taken five years to build, experts say. All this means, in theory at least, that service should improve. But the cost to buy that coverage is likely to go up.
First of all, “has invested millions” is so imprecise as to be worthless. The Times implies that because it’s in the seven figures, this is a big number. But $2 million, say, would not be, while $900 million just might.
Second, it’s not like AT&T is buying cell towers that are just sitting there unused. T-Mobile has millions of customers using them and AT&T would be buying these customers, too. Is T-Mobile’s network less busy than AT&T’s? That would have been good to know.
The Wall Street Journal goes with the Washington angle on B1, writing that the deal is “as much a wager on the political environment in Washington as it is a bet on the future of the wireless market.”
The Journal follows that quote with this, though:
The deal comes as the Obama administration has signaled it will police mergers more aggressively than the prior Republican administration.
It’s unclear why the Journal is talking about the Obama administration’s signals, when it has been in power now for twenty-six months. It has a track record on antitrust, and it’s not a very tough one, as the paper itself sort of points out a few paragraphs down:
So far, the Obama Justice Department hasn’t blocked a large, high-profile deal outright. Two controversial deals—Ticketmaster’s acquisition of Live Nation Inc. and Comcast Corp.’s purchase of NBC-Universal—were both allowed to proceed, albeit with significant conditions.
And if you want to talk about signals, it’s clear AT&T is picking up different ones. This is good reporting:
AT&T was encouraged when the Obama administration cleared the Comcast-NBC merger, because it felt regulators weren’t about to blanket-ban big mergers, people familiar with the matter said.
And this is excellent background, too:
Working in AT&T’s favor is a long history as one of the top-spending lobbying operations and campaign contributors in Washington, ties to influential lawmakers and policy makers in both parties, and the backing of the Communications Workers of America, the union that represents thousands of AT&T workers.
Since 1989, AT&T has been the top corporate donor to members of Congress, shelling out more than $46 million in campaign contributions to both Republicans and Democrats, according to the Center for Responsive Politics.
Last year, the company spent $15.4 million on lobbying in Washington.
The Journal’s consumer story gets off to a bad start:
In pitching its proposed $39 billion takeover of T-Mobile USA, AT&T Inc. said the big merger would be good for consumers and innovation. But consumer advocates, technologists and financial analysts paint a more complex picture.
The company is pitted against not just consumer advocates here, but several factions, including Wall Street. No wonder that group “paints a more complex picture” than a corporation trying to corner a huge market does.
It’s important to think about competition not just in terms of what it will do to prices, but for what it means for innovation. If you have fewer competitors, you’re going to have fewer companies doing research on new products and better service and you’ll have less pressure to invest in hugely expensive upgrades to a 4G or future 5G network. And you’re going to have greater leverage over software and hardware providers.
The Journal nods to that important aspect in this story:
The proposed deal could damp innovation by further enlarging AT&T, giving it greater power over new players such as Google Inc., as well as device makers and wireless-software developers that depend on the carriers to distribute their programs to consumers.
“They would have massive leverage with software providers and device makers, and they would use it,” said David Pakman, a partner with venture-capital firm Venrock.
And the Journal answers my question for the Times above, saying tech analysts think cell coverage would improve:
The reason is that AT&T would piggyback on T-Mobile USA’s wireless network, which isn’t as burdened as AT&T’s network since it doesn’t have to support millions of data-guzzling iPhone users.
I’ll leave the last word to the WSJ’s Dennis Berman, who makes some good points on the reconsolidation of the phone industry:
In 1999, there were more than a dozen sizable mobile companies. The deal means that only Verizon Wireless will remain as a viable mobile competitor to you, Ma. To think that decades of fierce political battles over deregulation and competition has produced a most unintended result: a telecom business that feels more like the days when the old regional Bell monopolies sold their domination as the best, and only, path for network reliability and new investment.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.
Tags: Antitrust, AT&T, Deals, The New York Times, The Wall Street Journal