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AT&T, T-Mobile Merger Signals Higher Prices

Whatever way AT&T Inc. spins it, the mobile giant’s plans to merge with T-Mobile USA in a deal worth $39 billion may be a win-win for shareholders if it goes through, but it will likely be a lose-lose for consumers. It will almost certainly result in less choice of mobile packages for customers and – given a respectable amount of time – higher prices too.

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Naturally, AT&T’s statement says consumers will still enjoy a range of choice: “The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal. The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market.”

Sounds good in theory, but it’s far from a level playing field. AT&T and Verizon – with over 65% collectively of industry sales, according to Bernstein Research – outsize Sprint Nextel Corp. and T-Mobile USA, the next biggest wireless carriers, and leave Clearwire Corp., Leap Communications and MetroPCS Communications Inc. in the dust.

AT&T also implies that more consolidation actually means lower prices. It’s a novel proposition. To support it, the company cites a 2010 report from the U.S. General Accounting Office, which said that the overall average price adjusted for inflation for wireless services fell by 50% from 1999 to 2009 during which time there were five wireless mergers. But that was a different world.

During those critical 10 years, cell phone use in the U.S. soared. AT&T and Verizon benefited from vast economies of scale. As companies merged, the cost per subscriber for companies fell as did roaming fees. Today’s wireless market is near saturation with 93% cell phone penetration, versus nearly 35% in 2000, according to CTIA-The Wireless Association.

The merged AT&T/T-Mobile entity would have 130 million users, giving the all-new AT&T and Verizon nearly 85% of the country’s cell phone market. A depressing aside for consumers from Bernstein Research senior analyst Craig Moffett: “The wireless industry is arguably already a duopoly in the United States…And it is growing more concentrated at a rapid pace.”

The upside: T-Mobile and AT&T offer each other complimentary technologies, which should produce a more powerful and reliable network, with improved voice quality and better coverage. T-Mobile, previously the wallflower at Apple’s party, will also eventually have access to the iPhone 4 … or possibly iPhone 5 if antitrust regulators allow the deal to go through.

It gives T-Mobile customers, fearful of rising prices, something to look forward to.


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    • I am an ATT user, I guess the merge would not impact me much. But for T-mobile user, they may see a hike on price as T-mobile used to have the cheapest plan. To save money, it is better to do some research before spending. http://www.socialdealmap.com is one of the best site for me to find the best price for local shopping restaurant and entertainment.

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