by Zachary Karabell Info
Zachary Karabell is President of River Twice Research and River Twice Capital. A regular commentator on CNBC and columnist for Time, he is the co-author of Sustainable Excellence: The Future of Business in a Fast-Changing World and Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It.
AT&T’s $39 billion T-Mobile purchase was quickly denounced by consumer advocates. Zachary Karabell on why the blockbuster deal may instead finally deliver the U.S. first-rate cell service.
After months when markets have oscillated on the ebbs and flows of political tumult in the Middle East and natural catastrophe and near-nuclear disaster in Japan, the business world was pleasantly rocked by the announcement of a mega-deal: the planned $39 billion acquisition of T-Mobile USA by AT&T. If the deal is approved, AT&T will add nearly 35 million new subscribers and vault past Verizon to become the largest wireless carrier in the United States with about 129 million customers, surpassing Verizon’s 100 million or so.
AT&T is merging with T-Mobile. Credit: M. Spencer Green / AP Photo; Frank Augstein / AP Photo
The most dramatic consequence of the deal (the largest in any industry this year so far, and the largest in the U.S. wireless industry since 2004 when now-struggling Sprint merged with Nextel) would be a sharp consolidation of the American wireless industry. Two companies—the new AT&T and Verizon—would control in excess of two-thirds of the market, leaving Sprint a distant third and others even further in the dust. The question for Americans is pretty simple: Will this new competitive landscape help or hurt? Will more calls be dropped for the same price or fewer for higher fees? And if there’s a problem, will there be anyone to answer that call or will two behemoths further jettison customer service in the belief that no one has much of a choice?
The deal will face a long and likely arduous period of regulatory scrutiny by both the Federal Communications Commission and the antitrust division of the Justice Department. Within hours of the announcement, consumer groups such as Consumers Union questioned whether such a consolidation of the industry would be good for customers, and Sprint will fight the deal using every legal and PR strategy it can muster.
But assuming that in the end, the deal does go through more or less as planned (and frankly, few such mega-deals get torpedoed altogether by regulators), the consequences might be beneficial for the American cellphone user. Cell service in most countries is dominated by near or total monopolies. The capital outlays for networks are immense, and with the pace of innovation to faster networks capable of handling the massive amount of data that today’s smartphones carry, those capital expenditures aren’t plateauing any time soon. Smaller players simply cannot build the robust networks necessary, and even large ones such as AT&T and T-Mobile in America have been unable to build truly national coverage given the size of the U.S.
Though there are legitimate concerns about service, no one who has been to other countries has failed to notice just how mediocre American cell service is by comparison. I have had better coverage walking on remote sections of the Great Wall of China than I do in midtown Manhattan. The AT&T merger will include billions in spending on extending the rural network, and the two together will have substantially more coverage than either does alone.
I have had better coverage walking on remote sections of the Great Wall of China than I do in midtown Manhattan.
Then there is the issue of price and customer service. The cable industry in the United States offers a less-than-happy example. Most people have no choice of cable carrier, and find escalating prices and declining customer service. But before you start worrying about being offered a window of 9 to 4 for someone to help you with your dropped calls, it’s worth noting that cable operators control both the hardware (the boxes) and the service, whereas cellphone operators do not service those iPhones and BlackBerries.
What’s more, though T-Mobile USA has been woefully deficient in coverage (and as a long-suffering subscriber, I have watched as my Verizon and AT&T friends chat away blithely while I linger in no-bar hell), it has had decent customer service. AT&T has been widely criticized for its customer relations. It is possible, of course, in a merger, that service will dwindle, but in a duopoly with Verizon in a market that isn’t adding subscribers, customer service becomes ever more important. AT&T may fail to realize that, but it will do so at its peril when customers will still easily be able to switch to Verizon. Customer service isn’t just something customers want and need: In a tight and competitive marketplace, it is an imperative for companies.
Finally, there is the question of price. AT&T isn’t taking on substantial debt to pay for the deal, so it won’t be in a position where it must raise prices to make the deal feasible. Consumers are rightly suspicious. Prices have been on a long and steady decline, and at some point, those declines will slow. New data requirements and increased capacity necessitated by smartphones will change the cost-structure, and cell carriers are likely to move ever more to a stratified system of charging heavy users more. Those trends are in place regardless of the deal, but warnings that an enhanced market position will allow AT&T to increase fees willy-nilly is at odds of the experience of cell carrier monopolies throughout the world. Fees will not be static, but nor can AT&T and others just charge what they wish.
Net-net, in terms of coverage, quality of service and cost, this is a rare deal that may be good for corporate America and good for consumers. There will be no end of debate about this in the coming year as the deal is examined in depth by regulators and by industry and consumer groups. Expect extreme claims to be made, but in the end, America may finally be on a path to having a first-world cell network. It’s about time.
Zachary Karabell is president of River Twice Research and River Twice Capital. A commentator on CNBC and columnist for Time, he is the co-author of Sustainable Excellence: The Future of Business in a Fast-Changing World and Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It.
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Zach, You gotta be kidding me! There is nothing AT&T will do to T-Mobile customers except jack up their fees and limit services. In terms of customer service, well, T-Mobile customers always rank as most pleased in the US while At&T customers tend to spew bile as they commont on the company's customer service. Coverage? I have been a T-Mobile customer for more than a decade, and have enjoyed full coverage everywhre I've been in the contiguous states, even as "far out" as Key West where I have a house, and where other cellular service providers' signals fall out constantly. You make so many excuses for AT&T, which is universally revilled by its residential customers.You believe AT&T will only raise T-Mobie customers fees IF IT HAS TO?? Kidding me again. Wanna bet? AT&T WILL TOTALLY HIKE T-Mobile cusotmer fees not becasue it has to, but becaue it can. AT&T is all greed and misery--and a brand name driven into the mud by its owner. Let's face it, you are trumpetinig this deal more because it's a big deal than for any other compelling reason. "Arduous" regulatory scrutiny, you say? Heh. You'll hapilly comply and defend AT&T when it starts jacking up your fees, I expect.
I couldn't agree more. I've been a T-Mobile subscriber in the Boston area since before 2001 when it was Voice Stream. I've always been happy with the service and coverage and how their pricing is always the least expensive. All you have to go is go to att.com and price out your current T-Mobile service against their options, it always came out about $50 more per month. If they can lower their prices to be competitive and take advantage of economies of scale fine, but if pricing stays the same I may look at Sprint or Virgin or MetroPCS. Here's and idea "FAMILY DATA PLAN WITH UNLIMITED DATA AND MESSAGING" for $150. Sold!
All this will do is expand their already crappy service and network. They (T-Mobile) didn't merge with Sprint because the networks were incompatible....tell you something? AT&T SUCKS....T-Mobile SUCKS!! Their prices are decent...but for what!! Verizon rules!!!!
I suppose you trying to convince someone? You did Verizon no favors here.
One of the worst companies in the US. Some of we paid enormous extortion just to get rid of the non-provider AT&Scam. BOYCOTT AT&Scam. Any other provider is a better value. Use at your own risk (read: scam)
I travel extensively for my job through miles and miles of rural countryside in Texas (nothing but farm and ranch land as far as the eye can see), and the only carrier that provides complete coverage with zero dropped calls is Sprint. I don't know how they managed to arrange such coverage when AT&T, a much larger and richer company, couldn't or wouldn't provide it, but Sprint was also the first to offer 4G service to the state's metropolitan areas. If history is any prelude to the future, AT&T will be slow to expand their coverage despite the additional income from T-Mobile subscribers, slow to offer faster service and their customer service will still stink.
UGGH. Do people always need to be licking each others brains with cell phones. Enough already! It's about time the cheap flow of information STOPS. Texting should be about 50 cents per use to discourage one of the most dangerous forms of communication on the planet. Unlimited talk plans should only exist for business level clients. I will never forget the first time i saw a beautfiul person talk to themselves on a cell phone in SF, looking homeless and schizoid so doing while falling down a exposed burried cable shaft, as if they interdimensionaly teleported to the person who they were conversating with.
Large monopolies are never good for the consumer. Sure you might see increased coverage in the short term, but the long term just looks like increased costs. People have the free market choice to pick which provider suited their region best and now it looks like there will be one less to compete. The increased revenues that AT&T will see will more likely go into the CEOs salary than improving their network significantly.
New AT&T Customers Be Aware- By D.K. Milgrim-Heath©2011 New AT&T customers be aware- Handle their T-Mobile's take-over with care! I had major problems at AT& T- For many months unfairly they fought me. I got their advertized high speed modem in 11/09- Thinking all with fast speed internet would be fine. With one week my cell, land phone and computer via their modem really flipped out- Of course AT& T said it was my fault alone not theirs any way about! They fought me by with no return money for the modem (only used for one week) return- So months by fighting them for my consumer's rights happened I did learn. I changed high-speed modem service 1 week after canceling AT&T to another service I highly recommend- So happy I am with them other people I do verbally send! The day my AT&T 2 year cell phone contract was up too I did change to another cell phone company- AT& T kept sending me a few months of bogus bills still 'like I was still their customer' so dishonestly! The verbal grievances continued as I went in monthly to AT&T's offices showing my face- All AT&T people knew me now - first I was nice but after months of proven dishonest billing wouldn't you have explosions in place? Threatening to do a YouTube you about their dishonest customer services on the internet- Then knowing fair well their months of games with me were really up as my bogus bills stopped you bet! So dear new AT& T customers handle your t-Mobile take-over with care- Run for your life to another a cell phone company that shows complete honest customer respect everywhere!
So pick another company and boycott AT&T. That's the glory of capitalism. If we had socialism, everybody would be using the government equivalent of AT&T, but worse.
That's pretty funny. Under our system of monopoly capitalism we get the benefits of a government-run system at 5 times the cost (Just look at your medical bills). After AT&T and Verizon merge, there will be no other choice. But I, for one, welcome our Corporate overlords. I'm sick and tired of hearing about this "competition" nonsense.
Oh, dear, and I just got a new phone from T-Mobile! Happily, they charged my credit card THREE times,THREE, for one phone. I thought my bank had made a mistake, but NO, T-Mobile did! The THREE phones were delivered and I returned TWO. One of them was received by T-Mobile TWO WEEKS ago and I'm still waiting for a credit. The second phone was out for delivery by UPS ONE WEEK AGO and now has disappeared somewhere in the UPS system, so I'm still waiting for that credit. T-Mobile's customer service representatives have refused to help saying I'll just have to wait! They seem to think it's funny, but I'm NOT LAUGHING!! Now, they've gone and hooked up with AT&T...I don't even want to think about how screwed T-Mobile, who I've been with for 6 years, will be now! Look out, Cricket, I'm coming!
Does this really make any sense at all? After the merger, as you say, what additional incentive will ATT have to extend its network, offer better pricing and offer better service that they don't have right now? If ATT has $25B on hand for this merger, why isn't that money spent to do these things that you say will magically happen after the merger when ATT will have far less cash to spend? Do you not think ATT will raise prices and cut service in order to replenish that $25B war chest again? This makes no sense. Oh, and BTW, the reason other countries do well with their cell phone monopolies is that they have governments that strictly regulate price and coverage. In the "free market" US we have nothing of the sort. This merger will be the most anti-consumer merger done in this country since the Standard Oil Trust days a 100 years ago. I will be deeply disappointed in this Administration if this merger goes through.
A bet that a buyout could stop Verizon from staying on top With its iPhone 4G Has left AT&T Now praying that this call won't drop. News Short n' Sweet by JFD8 http://twitter.com/JFD8
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