A Wireless Merger That’s Really About Data

Antitrust concerns over the AT&spamp;T/T-Mobile deal are about keeping high-speed data networks price-competitive, but market consolidation may hap...
Marielle SegarraSeptember 6, 2011

The U.S. Department of Justice last week filed an antitrust lawsuit to block the second-ranked U.S. telecom company, AT&T, from buying T-Mobile, the country’s fourth-largest wireless network provider. If the government succeeds, AT&T/T-Mobile will join an infamous list.

Of the 25 largest M&A deals withdrawn since 1980, 6 involved telecom companies, according to Thomson Reuters. In 1999, for example, MCI WorldCom offered $129 billion in stock to buy wireless carrier Sprint, but the reaction from U.S. and European regulators effectively scrapped the deal.

The stakes in the AT&T/T Mobile transaction may be higher than in any of these previously failed investments. Why? Data services. Consumers continue to shift toward doing everything on their mobile devices, and wireless carriers are investing more in software hosting, data storage, and processing power.

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“Last quarter was the first quarter I believe ever that the average number of [calling] minutes used by a wireless subscriber didn’t grow,” says Charles Golvin, a principal analyst at Forrester Research. “Consumers are using their phones for all kinds of data activities — browsing the web, social networking, and quite a bit of business activity — and these devices are increasingly critical to businesses that operate in real time. They are critical engines for the economy, for people’s personal lives; they’re increasingly elemental to our existence.”

The DoJ doesn’t want AT&T to have too big a slice of the mobile-computing power pie. At the press conference announcing the suit, acting assistant attorney general Sharis A. Pozen said if the merger goes forward, network providers will be less likely to offer the “low prices and innovative wireless handsets, operating systems, and calling plans that T-Mobile is known for.” She emphasized that T-Mobile “rolled out the first nationwide high-speed data network using advanced HSPA+ technology and the first handset using the Android operating system.”

If the deal doesn’t move forward, T-Mobile’s market power in data — and ability to compete — may diminish anyway. As AT&T has argued, T-Mobile doesn’t have access to the wireless spectrum that a carrier needs to deploy next-generation technology to improve users’ mobile data experience. Furthermore, “Deutsche Telekom has clearly indicated that it doesn’t see a future in the U.S. market,” says Golvin. “It is looking for someone to acquire the company and its assets.”

So if the AT&T takeover is scotched, “that doesn’t mean the U.S. is left with four equally strong providers,” says Golvin. “T-Mobile isn’t going to just say, ‘Oh, well, that didn’t work out; let’s get back to business and grow our market share.’”

The $39 billion transaction would make AT&T the largest wireless network provider, a third bigger than Verizon Wireless, which holds the top slot. AT&T says the deal would allow it to improve its high-speed wireless broadband service and make it accessible to 97% of Americans. But the DoJ counters that the deal would allow AT&T to raise prices for tens of millions of customers.