It's hard to imagine a less-consumer-friendly scenario than the merger of AT&T and T-Mobile. Fortunately, the U.S. Department of Justice has labeled this potential union as anti-competitive, so it filed suit to block the marriage. Too bad that it can't win.
Fewer Choices for More Consumers
"They compete on price, plan structure, network coverage, quality, speed, devices, and operating systems," Acting Assistant U.S. Attorney General Sharis A. Pozen said of T-Mobile at a press conference this morning. "Eliminating this aggressive competitor, which offers low pricing and innovative products, would hurt consumers, businesses, and government customers that rely on a competitive marketplace to provide them with the best products at the best possible price."
Well, no duh! In T-Mobile, we have a small, scrappy carrier which often strikes first in the marketplace with new technologies like HSPA+ and Android. We also have a carrier that's experimented with consumer-friendly pricing like its Even More Plus plan, which allowed consumers to save several dollars a month on service if they paid the entire cost of the phone up-front.
If AT&T buys T-Mobile, according to the DOJ, the three remaining carriers will control 90 percent of the market. However, we know that the majority of that 90-percent will belong to Verizon and AT&T, not third-place Sprint, which is clearly happy with the decision.
"By filing suit to block AT&T's proposed takeover of T-Mobile, the DOJ has put consumers' interests first," Sprint VP of Government Affairs Vonya B. McCann said in a press release. "Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision – one which will ensure that consumers continue to reap the benefits of a competitive U.S. wireless industry."
Leaked Document Ruins AT&T's Main Argument
AT&T's main justification for the $39 billion dollar merger is that it needs T-Mobile's spectrum to build out its next-gen LTE network. However, a leaked document that the company submitted to the FCC shows that, on its own, AT&T was already planning to cover 80 percent of the U.S. with LTE, but had decided to avoid the $3.8 billion dollar cost of reaching a full 97-percent of the market. Instead, the company wants spend more than 10x that amount to acquire T-Mobile based on the premise that it needs the other carriers' resources to get to 97-percent coverage within 6 years.
So let's be honest here. AT&T's goal in buying T-Mobile is simply to remove a competitor from the market, the only other U.S. competitor that uses a GSM-style network, as opposed to the CDMA networks provided by Verizon / Sprint. By pushing T-Mobile out, AT&T increases its clout with handset makers, decreases the number of active handsets on the market, and has the opportunity to charge higher prices as consumers are left with fewer alternatives.
Why AT&T is Too Influential to Fail
But will the DOJ prevail in its case against AT&T? My Magic 8 Ball says "not likely." As a large company with deep pockets, AT&T has the money and political clout to wage a very effective war against the DOJ.
In 2010, AT&T donated 2.7 million dollars to candidates in both major parties, with House Speaker John Boehner and Senate Majority Leader Harry Reid the leading recipients. And with a major election just over a year away, the carrier may want to delay the appeals process in the hopes that a new congress and possibly a new president take different positions on the merger. AT&T also has plenty of motivation to influence the election through both hard and soft money.
Those of us old enough to remember the DOJ's case against Microsoft in the late 1990s know exactly how this is going to end, with a settlement that allows AT&T to complete the merger in exchange for some very minor concessions, like divesting itself of some worthless assets or promising to cover more rural areas.
Back in 1999 and 2000, President Clinton's DOJ wanted to break up Microsoft, because of the software maker's anti-competitive practices. However, when 2001 rolled around, George W. Bush's DOJ stopped seeking a breakup and instead settled for a light-weight consent decree that simply forced Microsoft to tamp down some of its most infamous practices.
Whether it occurs before the 2012 election or after, AT&T will find a way to get what it wants. And that's bad news for consumers, handset makers, and other mobile players.
Online Editorial Director Avram Piltch oversees the production and infrastructure of LAPTOP’s web site. With a reputation as the staff’s biggest geek, he has also helped develop a number of LAPTOP’s custom tests, including the LAPTOP Battery Test. Catch the Geek’s Geek column here every week or follow Avram on twitter.