This Reuters story on the cellphone war between T-Mobile and AT&T is unintentionally hilarious—a good example of a story so myopically focused on profits that it mostly misses the bigger picture.
One of the basic tensions in business journalism is between investor-focused reporting and public-interest reporting. Sure, newswires are supposed to be for investors. Their subscribers are mostly investors, as we’ve argued, reporting solely on investor concerns, which are often short-term ones, and disregarding wider, longer public angles does nobody any good. Exhibit A for this idea was the mortgage era. Read Starkman’s book (hot off the presses!) for much more on that.
Plus, now that wires are distributed over the interwebs and reaching a mass audience, investor-opia can look downright silly.
First the backstory: Two years ago, antitrust regulators rejected AT&T’s $39 billion bid for T-Mobile USA—a deal that would have given Ma Bell and Verizon a 73 percent lock on the US market, a virtual duopoly.
Since that epic balagan (which cost AT&T a surely-a-record 7 billion or so in breakup fees), T-Mobile’s pink-shirted, leather-jacketed CEO, John Legere, has gone on to market his firm as the “Uncarrier”: doing away with contracts, ending international roaming charges, simplifying plans, and taunting his rival, AT&T’s Randall Stephenson:
#Randall – you gave us cash & spectrum AND we took your customers with #Uncarrier moves, do you really think you can buy them back?
— John Legere (@JohnLegere) January 3, 2014
T-Mobile—a distant fourth in the four-company US wireless industry—has seen market share gains that are roiling the stagnant industry. Now AT&T is fighting back by offering hundreds of dollars to customers to switch.
And, of course, Wall Street is panicking over the competition introduced to the top-heavy wireless industry.
Reuters quotes one analyst calling competition an “unhealthy market dynamic.” Another says this about customers saving money: “That’s clearly not a healthy sign.”
The handwringing tone of the piece and the casual acknowledgment of seriously distorted markets is quite something to behold:
Investors had hoped AT&T and market leader Verizon Wireless would be able to shrug off T-Mobile’s moves, since they already control about two-thirds of the market…
Some investors are still hoping for a ceasefire if SoftBank’s hopes of merging Sprint with T-Mobile come to fruition.
Consumers get a dependent clause in a paragraph of more hand-wringing:
While discounts are always welcomed by consumers, the intensifying competition is a new challenge to a U.S. industry long used to imposing its will on consumers, and analysts fear it could result in the loss of billions of dollars of revenue.
And this is buried toward the bottom of the piece:
AT&T reported an EBITDA margin of 42 percent in the third quarter; Verizon Wireless margins were at 51.1 percent.
Okay, these are insane margins. Through the first three quarters of 2013, Verizon Wireless alone raked in $26 billion in ebitda and cleared $20 billion in operating profit, according to its income statements. These are businesses minting money on their customers, who have few alternatives. That’s what’s causing panic at AT&T and on Wall Street.
Look, it’s obviously news that Wall Street is upset with what’s going on in the wireless world. But framing matters. This current arrangement is a windfall for current shareholders in the specific companies but bad in many other ways. It’s bad for customers. It’s bad for potential competitors. It’s bad for innovation. It’s inefficient.
Conversely, competition is having many positive effects on all of the above. Competition is supposed to be good, we thought.
Write about investor interests, of course, but look at the bigger picture.
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 rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.