AT&?s planned purchase of T-Mobile USA will create de facto duopoly
If a deal has to be announced on a Sunday afternoon when offices are closed, then something does not smell right with AT&T?s plans to scoop the weakest U.S. wireless carrier for $39 billion in cash and stock.
The combination of the nation?s second-largest carrier with the third largest, Deutsche Telekom?s T-Mobile USA, will create a mobile behemoth of 130 million subscribers with $79.8 billion combined wireless revenue, if the Federal Communications Commission and other agencies salute through this deal. It will also mean that between AT&T and Verizon Wireless, these two carriers will account for three out of four mobile subscribers nationwide.
?From the marketing perspective and the consumer perspective, you create greater scale, but in doing so, you also lose alternatives and that applies to the marketer as much as it does to the consumer,? said Noah Elkin, principal analyst at digital intelligence publisher eMarketer.
The irony of this deal is that it gets Dallas, TX-based AT&T closer to the pre-1984 AT&T, when the monopolistic Ma Bell was broken into several regional carriers. It has taken a quarter century for the regional players to coalesce around the AT&T brand, only this time its clout is in wireless.
Buying growth
Verizon is estimated to hold a 31.3 percent subscriber market share and AT&T 26.6 percent for the three months ending December 2010, according to market researcher comScore in data supplied by eMarketer. T-Mobile USA is in third place with 12.2 percent and Sprint is fourth with 11.9 percent.
The rest of the market is split among smaller players, some of them mobile virtual network operators and others operating in the prepaid segment: TracFone at 6 percent, Sprint Prepaid at 4.2 percent, MetroPCS at 2.8 percent, U.S. Cellular at 2.2 percent, Cricket at 1.8 percent and others including Virgin Mobile with 1 percent share.
Keep aside the optics that both AT&T and Germany?s Deutsche Telekom ? which will get $25 billion in cash and the rest in 8 percent stock in AT&T ? want the world and regulators to see: better network coverage, increased spending on infrastructure and expanded 4G LTE deployment. Focus instead on the winners and losers in this deal.
The top winner clearly is AT&T, which is buying growth, although T-Mobile?s customer base is said to spend less on its subscriptions than subscribers of other carriers.
But a major beneficiary of this deal is Apple. Acquiring Seattle-based T-Mobile USA will give AT&T the opportunity to upsell smartphones including the iPhone to 35 million more subscribers.
Moreover, the iPhone will now be available to three out of four mobile subscribers nationwide, making it a mass player within reach of AT&T, Verizon Wireless and an acquired T-Mobile USA.
Scale tale
So what this acquisition will have inadvertently achieved is a platform standardization and scale that could benefit mobile advertising, marketing, content and commerce. But it could also cement Apple?s position as the dominant smartphone and mobile platform provider.
?[Google?s] Android was seen as pulling ahead, but this deal gives the iPhone renewed currency,? Mr. Elkin said.
?If you look at it from the marketer?s perspective, the iPhone was already the first platform they think of, whether or not the numbers are justified,? he said. ?If the deal was approved, and that?s a big if, it could give iPhone a potential big boost.?
That said, most of T-Mobile USA?s subscribers are not likely to quickly upgrade to the iPhone or costlier AT&T data plans. Yet the incentives of iPhones costing less than $99 ? and already available at retail chains such as Walmart ? may entice them to switch.
Three other benefits other than obvious economies of scale also emerge out of this deal.
First is standardization of a platform that supports advertising, marketing, content and commerce. AT&T has a leg-up in this area, having worked to propel Apple?s iPhone and then iPad to national prominence.
With such scale for more sophisticated outreach to consumers, advertising agencies and advertisers will have fewer excuses not to allot more resources ? time and budgets ? to mobile marketing and commerce.
Next is the ease of running SMS campaigns. With one carrier out of the way, provisioning of common short codes will take less time. At least, that is the hope of marketers.
?There?s a downside from having one fewer partner to work with, but from a [short code] provisioning perspective, you have to only go to three carriers instead of four,? Mr. Elkin said.
?Mobile marketing will be affected differently depending on the channel you?re using,? he said. ?In the sense that if you?re doing an SMS campaign, there are fewer carriers to negotiate with, but from an earned-and-operated ad inventory perspective, the marketer may have less bargaining power.?
Finally, the deal is expected to lead to lower subscriber churn. Which, of course, is obvious: where else will consumers go post-deal other than AT&T, Verizon and Sprint?
Bells toll
The two biggest cases against the AT&T/T-Mobile USA deal can be spelled out: fewer alternatives for mobile subscribers with less competition in the marketplace and potential higher prices for voice and data plans, especially to T-Mobile USA customers.
?With certainly one fewer player, there?s less pressure on the AT&Ts and Verizons of the world to lower pricing,? Mr. Elkin said.
In seeking to head off potential opposition from regulators, AT&T has gone to pains to explain how this deal will benefit rural network coverage and the general market nationwide with enhanced speeds.
But it does not mask the fact that with T-Mobile USA out of the way, there will be one less player to keep the carriers on their toes.
In other words, there will be less competition, and that is something that the FTC has to examine when it scrutinizes this deal for intended and unintended market consequences.
Executives at Basking Ridge, NJ-based Verizon Wireless ? currently the nation?s largest carrier with more than 100 million subscribers ? are undoubtedly working on their own flanking strategies to protect market share from erosion.
Verizon?s edge over AT&T is simple: a network that is supposedly prone to fewer dropped calls and better coverage nationwide. AT&T disputes that, of course, but it is a worry if the carrier will be able to cope with the strain of T-Mobile USA customers pulling Web and application content.
And now that Verizon has the iPhone, it has leveled the playing field with AT&T in terms of smartphones offered to consumers.
The one carrier?s whose market strategy will be completely upended by the AT&T deal is Sprint. The Kansas City, MO-based company has not been able to keep pace with AT&T and Verizon, generating talk of a merger.
?Sprint was already withering on the vine,? Mr. Elkin said. ?If the deal goes through, it?s a de facto duopoly, not a de jure one.?