5 Reasons Why The AT&T And T-Mobile Merger Could Cause Problems
A few months back, AT&T announced that they were planning on buyng T-Mobile for $39 billion, surpassing Verizon Wireless as the nation's largest wireless carrier, pending government approval. The process to gain government approval kicked off last week with the Senate Judiciary Committee meetings, led by Senators Herb Kohl, Al Franken, and others.
With the start of these meetings, we've decided to look at some reasons why this merger could hurt consumers in the long run.
1. Low Customer Satisfaction
According to results from the American Customer Satisfaction Index (ACSI), both AT&T and T-Mobile dropped in their customer satisfaction index by 4 percent in the past year. Furthermore, customer satisfaction tends to dip after a merger completes, according to ACSI founder Claes Fornell. With already decreasing customer satisfaction for both companies, the merger would almost certainly hurt the public image of both companies.
2. Loss of Real Competition
During the Senate Judiciary Committee meetings, Cellular South CEO Victor Meena gave a testimony explaining that the merger would effectively bring competition back to a duopoly. Meena stated that in the late 1980's, a duopoly existed, and prices were high, and innovation was low. When the FCC auctioned off PCS licenses, many competitors entered the market, leading to a competitive wireless market. Meena believes the market is changing back to the 1980's duopoly with AT&T and Verizon being the two main competitors. According to USA Today, both Verizon and AT&T would have almost 80% of the market share.
3. Lack of Phone and Hardware Innovation
Based on the current state of wireless network infrastructure and how the growth of the networks have progressed, a merger could potentially slow down the growth of newer phones in the market. If the wireless market heads towards a duopoly, As Meena discussed during the Senate Judiciary Committee meetings, the innovation of the networks will most likely slow down. As a result, device manufacturers will most likely be hampered by network capabilities. Apple has already had to deal with this issue with tethering on the iPhone, which was possible from iOS v3.0, but AT&T's networks couldn't handle the data consumption.
4. Sprint in Trouble
Sprint CEO Dan Hesse states that Sprint buys wireline backhaul from both AT&T and Verizon and prices for these backhaul are generally set by AT&T, with little room for negotiation. With the merger, Sprint would be at a larger disadvantage because they would lose the ability to negotiate for the backhaul. Prices for the backhaul have been deregulated for the past ten years because the FCC believed competition for the backhaul would keep the prices low.
5. Costly for AT&T Either Way
As per the merger agreement, AT&T agreed to pay $39 billion for both cash and stock of T-Mobile if the FCC agrees to the deal. However, if the deal doesn't go through, AT&T would pay T-Mobile $3 billion in cash, $2 billion worth of spectrum, and a roaming agreement worth approximately $1 billion, totaling $6 billion. The $2 billion in spectrum would allow for about 10 MHz of spectrum, which would allow T-Mobile to offer high-speed services and double T-Mobile's available spectrum.
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