For AT&T-T-Mobile merger, fairness to Sprint is in the details

For AT&T-T-Mobile merger, fairness to Sprint is in the details

Summary: Sprint files to block the merger between T-Mobile and AT&T. Is it anti-competitive? Depends on who you ask.

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On Tuesday, Sprint -- the third-largest wireless carrier in the nation -- filed a motion to block the pending merger between T-Mobile and AT&T, Nos. 4 and 2, respectively.

Among other things, the company fears that the merger would allow Verizon (No. 1) and AT&T a duopoly of sorts, giving them more power to set prices (which is indeed illegal) and "rule the air[waves]," as Verizon's ads aptly put it, occupying 76 percent of the wireless market.

Moreover, Sprint says the two will increase rates -- including on backhaul services, which allow carriers to hand off traffic to each other's networks -- and, through exclusivity agreements with handmakers, restrict its access to them and their flagship devices.

And that doesn't even include the squabbles over wireless spectrum rights. Consumers be damned!

The picture Sprint paints in a bleak one for both itself and consumers, with a common thread running through all complaints: less competition means less choice.

That fact is undeniably true. But how much choice does the market really want?

THE MARKET QUESTION

For many years, T-Mobile (and to less extent, Sprint) have already been weakened by Verizon and AT&T's domination. With savvy moves made by both carriers -- the former, with the iPhone, and the latter, with the Droid family of Android phones (and later the iPhone) -- the two have managed to preserve a significant lead on their rivals.

Here's a look at the U.S. market as it stands today, in terms of revenues:

  • Verizon: 35 percent
  • AT&T: 32 percent
  • Sprint: 15 percent
  • T-Mobile: 12 percent

Already, Verizon and AT&T occupy more than two-thirds (67 percent) of the market. And for those doing the math at home, that leaves just 6 percent of market revenues -- relative scraps -- for super-regional carriers such as MetroPCS, U.S. Cellular, Leap Wireless (Cricket), Alltel and others.

But it wasn't that long ago that Sprint acquired Nextel, then the fifth largest wireless carrier, in 2005. Then, its smaller affiliates filed motions to block the merger.

From a strictly corporate point of view, we've seen this film before. This time, it's just higher up the food chain.

Here's a look at revenues immediately post-merger:

  • AT&T: 44 percent
  • Verizon: 35 percent
  • Sprint: 15 percent
  • The rest: 6 percent

It's a tough situation for Sprint, but it's not fundamentally different than the situation as it stands today.

Plus, the attraction factor: most T-Mobile customers remain either for the company's well-received customer service or its rates, the lowest of the big four. Those qualities aren't just because T-Mobile is a nicer company; they're tools to compete with the bigger brands, who, by the dynamic of being popular, need not care about the masses nor cater to them.

In other words, it's likely that a good portion of original T-Mobile/new AT&T customers will either 1.) defect for the lowest-rate big carrier (Sprint, thanks to its new role at the bottom, or MetroPCS, stepping up to the plate) or 2.) choose AT&T or Verizon, which they were either agnostic about or planning to do anyway (iPhones will do that), and just haven't made the leap.

So it seems to me that, spectrum qualms aside, Sprint's just unhappy that other companies are forcing them into a low-cost business model they've been trying to ditch. (And to be fair, they've gained some traction, thanks to Android and Palm handsets.)

Simply: it's not against antitrust laws for AT&T and T-Mobile to merge; it's against them if the new company acted with Verizon in suppressing the rest. I'm no attorney, but it doesn't seem to be a sound legal argument to say that this new company will suddenly start fixing prices with its chief rival, just because it's 12 percent bigger.

It seems to me that only thing that's truly anti-competitive is that Sprint doesn't have anyone else suitable with which to merge.

THE SPECTRUM QUESTION

Now, the spectrum issue is a bigger one. In the zero-sum game that is the nation's wireless capacity, it wouldn't surprise me if regulators argue that the new AT&T -- boosting its wireless band portfolio from a market-leading 107 bands to 157 -- specifically in the PCS and AWS-1 areas, where it leapfrogs past the competition.

As Julie Bart notes at HotHardware, AT&T is already the largest holder of unused spectrum. As luck would have it, MetroPCS weighed in on the AT&T-T-Mobile merger, suggesting that the new company divest some of that spectrum back to its competition and, while it's at it, ditch exclusivity deals with handset makers. (Meanwhile, Leap said the merger should be denied outright.)

To me, that sounds like the most likely of outcomes: the merger will continue, since it's not even a majority of the market, but there will include a fair number of limitations on the resources it has managed to build up along the way.

(And hey, you never know: one of those could very well be a stipulation that Sprint deserves an iPhone.)

THE CUSTOMER QUESTION

Now, what about the customers? As a T-Mobile customer myself, I'm disappointed but entirely unsurprised -- my gravy train is coming to an end.

As a loyal T-Mo customer -- back to the days of VoiceStream -- I've been riding the bottom of the market for a long time. When T-Mobile rolled out contract-free plans in an attempt to pluck customers from the prepaid wireless sector, I only benefitted -- keeping my otherwise pristine Motorola Razr V3 long past its expiration date and ratcheting down my plan to a paltry $40 a month, $46 if you include taxes and the occasional text message.

But bottomfeeders like me are no base on which to build a business, especially when customers are so damn keen on upgrading to smartphones that they can't afford. (Ask any wireless rep: smartphone adoption is comparatively higher for low-income households. They may not have a lot of money, but at least the low-balance account warning arrives right in their pocket.) And so T-Mobile has been, effectively, an exercise in seeing how long I could stay on the sinking ship -- and delay upgrading to an expensive, if lovely, smartphone that I know I can afford anyway -- before I'd have to jump in bracing seawater.

It was inevitable that I'd eventually jump ship; this merger just forces me overboard. What is lost is that lovely low monthly bill -- clearly an outlier among the major carriers -- and the sparkling customer service that comes with a company that desperately needs to attract (or hell, keep) customers.

The good news is that responsibility now shifts to Sprint, which current customers will already know, always had fairly competitive rates, especially for smartphones.

The market dynamic has changed. Sprint is now the bottom of the totem pole, competing not on sexy handsets -- which it will certainly have -- but price and customer service. It may not like this role, but it's inevitable: it cannot compete with the largesse of the other two carriers.

The upside is that it's likely looking at a rebound. I liken it to the battle between the "Big Three" television networks -- CBS (whose parent company owns this site), NBC and ABC -- in the 1950s: once fourth network DuMont folded in 1956, ABC rebounded. (It took them another decade to match the market share of the bigger two channels, but still.) And another 20 years later, a network called Fox appeared out of the ether to challenge and upend that order.

It's not entirely analogous, but my point is that this merger isn't about the viability of a fourth network -- it's about the necessity of T-Mobile as a counterbalance to the other three. The problem is that T-Mobile of late was acting more like the No. 1 super-regional carrier than the No. 4 national one, competing for the $40 or $50/mo. phone bill set, and not the customers in the first tier.

The big, honking caveat is that, unlike television channels, you can't switch your carrier at any time. As a customer, you're locked into a two-year contract. If you want to switch, you can't -- and to add to it, you can't have the same phone, either. So market forces aren't quite natural here.

As a customer, this is where I see the most upside in the merger. I hope that regulators take a hard look at the wireless landscape and realize that it's not company size that's limiting customer choice -- it's the handsets themselves.

Think about it: would you stay with your carrier if the exact same handset was available from another? Aside from customers who have no choice from a geographical standpoint -- no doubt a place for deeper regulatory inspection during the merger proceedings -- the answer is as likely "no" as "yes."

Topics: Mobility, Banking, Telcos, Wi-Fi

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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32 comments
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  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    This merger is going to happen, unfortunately. I am not too worried about sprint, though. They have fixed most of their problems that were weighing them down: 1. good handset selction, 2. good customer service, 3. Good prices, 4. unlimited data (which may be short lived), 5. Upgraded network(5 billion dollar network vision), plentiful amounts of Spectrum(via clearwire which may soon result in a merger),6. a new cdma push to talk to replace the aging Nextel iden network(via the network vison), and lastly their largest competiter in the prepaid/lower end market out of the game.
    If sprint plays its cards right, they could become a huge threat in the coming years when voice is simply another application and spectrum is the key. With a man like Dan hesse at the forefront, I am not one bit worried. Lets just see how it plays out.
    g-chapman
    • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

      @g-chapman you mean downgraded network? my speeds haven't been able to get above 300k on Ev during hours for the past 4 months now
      Eric12341
      • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

        @Eric12341
        You only get 300k on sprints 4G wifi network? Where do you live? I assume your talking 4G as thats the upgrade he was refering to as 3G gets phased back
        Fletchguy
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    If this merger happens Sprint will have to merge . They are 16 billion in debt and are to far down the food chain . You might as well pay more and go straight to Verizon unless you are love the merger experience .

    You got a good off contract deal because there is vibrant competition . Being savvy is not being a bottom feeder . This merger is a violation of anti trust on a GSM , global standard , monopoly alone . It should never be allowed .
    The_Todd
    • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

      @The_Todd Ah but this is the United States, where you can break the law and get away with it as long as your pockets are deep enough. This merger will go through. I just hope this does not mess up my unlimited plan for my iPhone on AT&T.
      Bates_
      • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

        @Bates_

        AT&T will give you an unlimited iPhone plan ? There is a class action lawsuit against AT&T for data over billing . For predominately over billing data on the iPhone right? I really feel this merger will lead to the death of the golden goose that has been America's wireless industry . I agree though , AT&T's lobby spending has really been overwhelming . Government for hire : (
        The_Todd
      • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

        @Bates_
        That plan has already been decided to go away at end of each users current contract. The best phone company out is still Boost Mobile by Sprint. Its on sprints network starts at $50 for unlimited everything talk text data , no contract and now has shrinkage where every 6 payments on time your bill drops $5 a month down to $35. I currently pay $40 a month for my evo unlimited everything no contracts.Great coverage and I can use 4G still as ala carte pay as I want it.
        Fletchguy
    • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

      @The_Todd <br><br>If Sprint has to merge, that may not be a bad thing as long as it isn't with Verizon. A merger with a regional carrier or carriers (most of whom use compatible CDMA technology) such as US Cellular, Cricket, Metro etc could lead to a new, larger Sprint that is nearly as big as VZW and AT&T. <br><br>In fact, if not for the purchase of Nextel back in 2005 (with its obsolete, incompatible iDEN) Sprint probably could have merged with Alltel long before VZW gobbled it up.
      daveyb9988
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    I love ATT hopefully Tmo makes it better and they bring back unlimited iPhone plans!!
    Hasam1991
    • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

      @Hasam1991
      ...because we all know companies always treat their customers better as they grow bigger, stronger and more powerful. Good luck with seeing unlimited plans ever again.
      NetAdmin1178
    • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

      @Hasam1991 Yeah because the wireless industry is all about reducing prices... Another great Hasam comment! There will never be another unlimited plan without more competition.
      snoop0x7b
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    I think... There should be many arrests made ,$600+ Million to lawmakers to pass this (Bribery a Lawmakers)
    Fines should be twice the amount ! Does anyone remember why they were broke up in the first place?
    When they (AT&T) purchased South Bell ,in Southern Calif, they agreed to low income internet and failed to comply,If anyone read news yesterday FCC results on fairness wont like AT7T ending up with 97 % of the market in 2 years, Yes , again, monopoly ! DUH !
    Call you congressman and FCC website or you had better buy stock in At&T , to pay your phone bill.
    Orlandca
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    Well said. As IT Director I manage our companys mobile devices and account and I can tell you that we would in a minute look into switching carriers (probably more than rarely) if they same handsets were available across networks.<br><br>I liken it to the 'old days' when we actually had to negotiate new 'long-term' agreements for our Long Distance services with the likes of AT&T, MCI, Sprint, etc. every two or three years. The difference there was that the service was quite literally universal amoungst the players. I didn't mind the actualy term agreement (read contract) as much because I always knew that the rates were going to plummet and I could freely move to the most agressive carrier as my new service provider. The key was that the 'services' provided were universally interchangable.<br><br>With wireless, well...it isn't quote so, now is it?<br><br>My 2c fwiw
    tmcgoldrick
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    Simply put: the merger needs to be blocked.
    seekthelight
  • The duopoly would be a bad thing

    Forget about unlimited plans and competitive pricing if this merger goes down.
    balsover
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    I like the deals and customer service at T-Mobile as well. We have been a customer for 9 years now, I don't expect things to be better price and customer service wise, under AT&T. As a local, LD, DSL customer of AT&T it would simplify billing and maybe the combined bill would be less than the parts.<br>Alltel was mentioned as a regional carrier, they were gobbled up by Verizon a couple to three years ago, they had to give some of the market to AT&T, as a condition of the merger.
    I still don't plan on buying an iphone anytime soon. <br>The new AT&T doesn't quite have the monopoly that the old Bell System used to have, for one thing they don't have the manufacturing arm--Western Electric--which is now broken into more pieces than the old MaBell was in 1984. SBC (AT&T) doesn't have all of the Baby Bells (Verizon is one), SBC has bought several of them, though, including the parent (AT&T), and assumed (appropriated?) the name (AT&T).
    dhays
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    I do not like AT&T and if the merger goes through when my contract is up I will not renew it with either T-Mobile which I am currently with or AT&T which I left for T-Mobile since I do not like AT&T who jacks up prices which I can afford and causes a lot of heartaches in the prices like they have done in the past.<br>I will not let AT&T dictate to me what higher prices I have to pay. I know because I left them because of that in the first place and I will not be with them or have them as my carrier. I will definately look for another company or have nothing for sure.<br>This is a disaster for the poor and low-income people that just found a way to get a phone that is in their price range and I am sorry the T-Mobole is letting AT&T dictate to them like this. I will not be a AT&T customer ever again or a Verizon customer which I left the same as AT&T. And that is for sure, so T-Mobile your getting ready to lose a lot of customers and I for one am one of them!
    D_F
    • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

      @D_F
      Well that just leaves you with Sprint or one of the pre-paid phones like Virgin Mobile or Tracphone.

      I too will be looking at these options once my Verizon contract is up. AT&T is also not an option.
      ScorpioBlue
  • RE: For AT&T-T-Mobile merger, fairness to Sprint is in the details

    What about those of us who do not have ATT coverage. Will the merger help us...no! All the iPhone users who come to our community cannot use their phones. Businesses and tourists leave town as soon as they can. If ATT is adding to their spectrum they should be forced to provide universal coverage and cooperate with other carriers.
    smshipitalo@...
  • Some problems with the NBC-CBS-ABC-DuMont analogy

    The thing that killed DuMont was the fact that TVs at the time were not required to receive UHF stations, which many DuMont stations were on. The FCC didn't pass "all channels" regs until 1964, and RCA (owners of #1 NBC) was only happy to keep making VHF-only sets until then (NBC had the most VHF affiliates of the networks).

    Not helping was the merger of Paramount Theaters and ABC, opposite Paramount Pictures (which had recently divested the theaters) owning part of DuMont. A merger of DuMont and ABC was blocked because of the recent split of Paramount Pics and Paramount Theaters.

    This was less a case of a weak #4 going away and helping #3 than it being a case of legal and technical stymies helping some to the hindrance of others.
    jabster17