T-Mobile shows upside of M&A skepticism

After AT&T's disastrous attempted acquisition, T-Mobile upends convention

Two years ago, AT&T announced it had agreed to acquire T-Mobile USA from Deutsche Telekom for $39 billion.

The deal would have effectively made the US a two-carrier country, with AT&T and Verizon controlling 73 percent of the wireless industry, with third-place Sprint at 16 percent, but losing billions of dollars a year.

So confident was AT&T in the decades-long gutting of antitrust enforcement that it agreed to pay Deutsche Telekom $3 billion in cash and extremely valuable spectrum licenses if it failed to complete the deal.

For the typically rah-rah M&A press and, more important, for antitrust officials, the purchase proved to be a deal too far, and AT&T was forced to abandon its bid nine months later.

The company had to fork over $7 billion in cash and spectrum rights to Deutsche Telekom.

For making one of the costliest and dumbest moves in the annals of industry, AT&T CEO Randall Stephenson took a $2 million pay cut—to $22 million that year. Other people’s money, and whatnot.

Fortunately, for Americans with cellphones, the government stepped in to prevent an already consolidated industry from calcifying further.

Now, they’re reaping the benefits.

T-Mobile has taken to marketing itself as the “Uncarrier” and has indeed made some major moves that distance itself from the American wireless industry’s cartel-like behavior with actual, you know, competition.

This spring, it ended what the NYT’s David Pogue has aptly called the Great Cellphone Subsidy Con, where the carriers subsidize the price of your iPhone in exchange for a two-year contract, which doesn’t decrease in price when your phone is paid off. T-Mobile allows you to pay full freight for a phone upfront or pay off the actual cost in installments on your bill. It also did away with contracts completely—a major step.

On Wednesday, T-Mobile announced that its users will no longer have to pay roaming charges when they’re overseas. Say what?

T-Mobile customers will be automatically enrolled in the free-roaming agreement on Oct. 31. Those who subscribe to the company’s plan, called Simple Choice, can take their smartphone to a foreign country and pay 20 cents a minute for voice calls. Text messages and data will be unlimited.

The free roaming benefit will apply to about 100 countries, including France, Spain, China, Japan and Russia.

I just moved to Denmark a few weeks ago and I was super-paranoid about racking up one of those $200,000 mobile bills. AT&T charges $19.50 per megabite of data when you’re roaming overseas without an international plan. It charges $120 a month for a plan with 800 MB of data, which is less than half what I had in the States.

I always thought these exorbitant charges were due to high market rents charged by other carriers. I should have known better. T-Mobile’s leather-jacketed CEO exposes that as untrue:


“The big carriers have created a perception that it costs this much. But it really doesn’t,” Mike Sievert, T-Mobile’s chief marketing officer, told me. “It’s just that they’ve gotten away with charging us these bloated 90 percent profit margins.”

Here we have an extremely valuable lesson in why we need antitrust enforcement. Had AT&T absorbed T-Mobile two years ago, there’s zero chance any of these big changes would have been made.

In the meantime, T-Mobile is already putting heat on the would-be duopolists at AT&T and Verizon. It’s gaining market share, reversing what had been a downtrend and further gains will put pressure on competitors to adopt its customer-friendly practices. T-Mobile also acquired the small carrier Metro PCS—a “good” instance of M&A because the deal enables the two to better compete with the big boys.

The US cellphone market clearly needs more of this kind of competition. Here in Denmark, the mobile market is highly competitive despite TDC having a 42 percent market share—bigger than AT&T or Verizon has in the US. There are four major carriers and a lot of prepaid providers that are given access to the big companies’ networks. That in a country of 5.5 million people.

I just signed up for Danish mobile service that includes two 4G lines that each get eight hours of talk, 2GB of data, unlimited texts, family talk/text, unlimited music, data sharing, and hotspots for 300 kroner a month. That’s $54, including taxes.

My AT&T bill back in the States for lesser service? $165 a month. Take out the iPhone subsidy and it was still $145 a month or so.

Here’s hoping T-Mobile shakes things up some more in the States.

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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. Tags: , , , ,