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

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

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."